----

----

|  California (State      or other jurisdiction of incorporation or organization) |   |  94-2723335 (I.R.S.      Employer Identification No.) |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------|

| Large      accelerated filer R                                                      | Accelerated      filer £         |
|-------------------------------------------------------------------------------------|---------------------------------------|
| Non-accelerated      filer £      (Do not check if a smaller reporting company | Smaller      reporting company £ |

----

|                                          |                                                                                                                            |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|                                          | Page      No.                                                                                                                   |
|                                          |                                                                                                                            |
| Part      I:  Financial Information |                                                                                                                            |
|                                          |                                                                                                                            |
| Item      1:                                  | Condensed Consolidated Financial Statements      (Unaudited)                                                                    |   |
|                                          |                                                                                                                            |   |
|                                          | Condensed Consolidated Balance      Sheets as of September 30, 2008 and December 31,      2007                                  | 2 |
|                                          |                                                                                                                            |   |
|                                          | Condensed Consolidated Statements of      Operations for the Three and Nine Months Ended September 30, 2008 and      2007  | 3 |
|                                          |                                                                                                                            |   |
|                                          | Condensed Consolidated Statements of      Cash Flows for the Nine Months Ended September 30, 2008 and      2007                 | 4 |
|                                          |                                                                                                                            |   |
|                                          | Notes to Condensed Consolidated      Financial Statements                                                                       | 5 |
|                                          |                                                                                                                            |   |
| Item      2:                                  | Management’s Discussion and      Analysis of Financial Condition and the Results of      Operations                       | 10 |
|                                          |                                                                                                                            |        |
| Item      3:                                  | Quantitative and Qualitative      Disclosure About Market Risk                                                                  | 17 |
|                                          |                                                                                                                            |   |
| Item      4:                                  | Controls and      Procedures                                                                                                    | 17 |
|                                          |                                                                                                                            |   |
| Part      II:  Other Information    |                                                                                                                            |
|                                          |                                                                                                                            |
| Item      1:                                  | Legal      Proceedings                                                                                                          | 17 |
|                                          |                                                                                                                            |   |
| Item      1A:                                 | Risk      Factors                                                                                                               | 17 |
|                                          |                                                                                                                            |   |
| Item      2:                                  | Unregistered Sales of Equity      Securities and Use of Proceeds                                                                | 17 |
|                                          |                                                                                                                            |   |
| Item      3:                                  | Defaults Upon Senior      Securities                                                                                            | 17 |
|                                          |                                                                                                                            |   |
| Item      4:                                  | Submission of Matters to a Vote      of Security Holders                                                                        | 17 |
|                                          |                                                                                                                            |   |
| Item      5:                                  | Other      Information                                                                                                          | 17 |
|                                          |                                                                                                                            |   |
| Item      6:                                  | Exhibits                                                                                                                        | 17 |

----

CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                       |   | September      30, 2008 |        |   | December      31, 2007 |   |
|--------------------------------------------------------------------------------------------|--------|-------------------------|-------------|--------|------------------------|--------|
| ASSETS                                                                                     |   |                    |        |   |                   |   |
| Investments                                                                                |   | $                       | 194,417,560 |   |                   | $      | 365,523,644 |   |
| Cash      and cash equivalents                                                             |   |                    | 139,577,377 |   |                   |   | 70,791,025 |   |
| Notes      and other receivables, net                                                      |   |                    | 23,475,892  |   |                   |   | 17,151,065 |   |
| Reinsurance      receivables                                                               |   |                    | 16,478,318  |   |                   |   | 16,887,953 |   |
| Real      estate and water assets, net                                                     |   |                    | 247,929,146 |   |                   |   | 200,605,792 |   |
| Deferred      income taxes, net                                                            |   |                    | 9,652,383   |   |                   |   |   |   |
| Property      and equipment, net                                                           |   |                    | 1,564,628   |   |                   |   | 1,212,394 |   |
| Other      assets                                                                          |   |                    | 3,075,658   |   |                   |   | 4,170,407 |   |
| Total      assets                                                                          |   | $                       | 636,170,962 |   |                   | $      | 676,342,280 |   |
|                                                                                       |   |                    |        |   |                   |   |   |   |
| LIABILITIES      AND SHAREHOLDERS' EQUITY                                                  |   |                    |        |   |                   |   |   |   |
| Unpaid      losses and loss adjustment expenses                                            |   | $                       | 30,855,635  |   |                   | $      | 32,376,018 |   |
| Deferred      compensation                                                                 |   |                    | 34,605,873  |   |                   |   | 52,546,234 |   |
| Bank      and other borrowings                                                             |   |                    | 28,203,045  |   |                   |   | 18,878,080 |   |
| Deferred      income taxes, net                                                            |   |                    |        |   |                   |   | 17,675,162 |   |
| Income      taxes payable                                                                  |   |                    | 24,220,278  |   |                   |   | 3,209,651 |   |
| Other      liabilities                                                                     |   |                    | 16,942,245  |   |                   |   | 25,806,566 |   |
| Total      liabilities                                                                     |   |                    | 134,827,076 |   |                   |   | 150,491,711 |   |
|                                                                                       |   |                    |        |   |                   |   |   |   |
| Commitments      and Contingencies (Note 4)                                                |   |                    |        |   |                   |   |   |   |
|                                                                                       |   |                    |        |   |                   |   |   |   |
| Common      stock, $.001 par value; authorized 100,000,000 shares,                         |   |                    |        |   |                   |   |   |   |
| 23,265,187      issued and outstanding in 2008 and 23,259,367 in 2007                      |   |                    | 23,265      |   |                   |   | 23,259 |   |
| Additional      paid-in capital                                                            |   |                    | 438,863,676 |   |                   |   | 435,235,358 |   |
| Accumulated      other comprehensive income                                                |   |                    | 24,194,346  |   |                   |   | 79,469,438 |   |
| Retained      earnings                                                                     |   |                    | 116,534,242 |   |                   |   | 89,405,743 |   |
|                                                                                       |   |                    | 579,615,529 |   |                   |   | 604,133,798 |   |
| Treasury      stock, at cost (common shares: 4,424,795 in 2008 and 4,425,630 in      2007) |   |                    | (78,271,643 | )      |                   |   | (78,283,229 | ) |
| Total      shareholders' equity                                                            |   |                    | 501,343,886 |   |                   |   | 525,850,569 |   |
| Total      liabilities and shareholders' equity                                            |   | $                       | 636,170,962 |   |                   | $      | 676,342,280 |   |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements

----

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                         |   |  Three      Months Ended September 30, 2008 |       |   |  Three      Months Ended September 30, 2007 |   |       |  Nine      Months Ended September 30, 2008 |   |   |  Nine      Months Ended September 30, 2007 |   |
|--------------------------------------------------------------|--------|--------------------------------------------------|------------|--------|--------------------------------------------------|--------|------------|-------------------------------------------------|--------|--------|-------------------------------------------------|--------|
| Revenues:                                                    |   |                                             |       |   |                                             |   |       |                                            |   |   |                                            |   |
| Net      investment income                                   |   | $                                                | 2,599,056  |   |                                             | $      | 4,180,743  |                                            |   | $      | 8,709,605                                       |   |   | $ | 13,723,147 |   |
| Net      realized gain (loss) on investments                 |   |                                             | (2,313,541 | )      |                                             |   | (848,488   | )                                               |   |   | 47,758,894                                      |   |   |   | 769,605 |   |
| Sale      of real estate and water assets                    |   |                                             | 429,956    |   |                                             |   | 1,477,434  |                                            |   |   | 1,735,727                                       |   |   |   | 5,903,810 |   |
| Gain      on sale of water storage                           |   |                                             | 8,715,682  |   |                                             |   |       |                                            |   |   | 8,715,682                                       |   |   |   |   |   |
| Rents,      royalties and lease income                       |   |                                             | 166,972    |   |                                             |   | 170,101    |                                            |   |   | 488,903                                         |   |   |   | 471,640 |   |
| Other                                                        |   |                                             | 234,366    |   |                                             |   | 3,435,709  |                                            |   |   | 824,240                                         |   |   |   | 3,574,974 |   |
| Total      revenues                                          |   |                                             | 9,832,491  |   |                                             |   | 8,415,499  |                                            |   |   | 68,233,051                                      |   |   |   | 24,443,176 |   |
| Costs      and Expenses:                                     |   |                                             |       |   |                                             |   |       |                                            |   |   |                                            |   |   |   |   |   |
| Operating      and other costs                               |   |                                             | 1,678,632  |   |                                             |   | 6,056,598  |                                            |   |   | 10,867,713                                      |   |   |   | 24,308,664 |   |
| Cost      of real estate and water assets sold               |   |                                             | 145,369    |   |                                             |   | 426,008    |                                            |   |   | 467,267                                         |   |   |   | 1,897,214 |   |
| Depreciation      and amortization                           |   |                                             | 334,600    |   |                                             |   | 269,431    |                                            |   |   | 939,268                                         |   |   |   | 818,126 |   |
| Total      costs and expenses                                |   |                                             | 2,158,601  |   |                                             |   | 6,752,037  |                                            |   |   | 12,274,248                                      |   |   |   | 27,024,004 |   |
| Income      (loss) before income taxes and minority interest |   |                                             | 7,673,890  |   |                                             |   | 1,663,462  |                                            |   |   | 55,958,803                                      |   |   |   | (2,580,828 | ) |
| Provision      for income taxes                              |   |                                             | 7,213,702  |   |                                             |   | 1,189,928  |                                            |   |   | 29,508,763                                      |   |   |   | 137,890 |   |
| Income      (loss) before minority interest                  |   |                                             | 460,188    |   |                                             |   | 473,534    |                                            |   |   | 26,450,040                                      |   |   |   | (2,718,718 | ) |
| Minority      interest in loss of subsidiaries               |   |                                             | 72,329     |   |                                             |   |       |                                            |   |   | 678,459                                         |   |   |   |   |   |
| Net      income (loss)                                       |   | $                                                | 532,517    |   |                                             | $      | 473,534    |                                            |   | $      | 27,128,499                                      |   |   | $ | (2,718,718 | ) |
|                                                         |   |                                             |       |   |                                             |   |       |                                            |   |   |                                            |   |   |   |   |   |
|                                                         |   |                                             |       |   |                                             |   |       |                                            |   |   |                                            |   |   |   |   |   |
|                                                         |   |                                             |       |   |                                             |   |       |                                            |   |   |                                            |   |   |   |   |   |
| Net      income (loss) per common share – basic:       |   | $                                                | 0.03       |   |                                             | $      | 0.03       |                                            |   | $      | 1.44                                            |   |   | $ | (0.15 | ) |
| Weighted      average shares outstanding                     |   |                                             | 18,835,598 |   |                                             |   | 18,833,737 |                                            |   |   | 18,834,620                                      |   |   |   | 18,174,007 |   |

|                                                     |   |   |       |   |   |   |       |   |   |   |       |   |
|----------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|--------|------------|--------|
| Net      income (loss) per common share – diluted: |   | $      | 0.03       |   |   | $      | 0.02       |   |   | $      | 1.43       |   |   | $ | (0.15 | ) |
| Weighted      average shares outstanding                 |   |   | 19,075,268 |   |   |   | 19,026,136 |   |   |   | 18,930,047 |   |   |   | 18,174,007 |   |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements.

----

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                              |   | Nine      Months Ended September 30, 2008 |        |   | Nine      Months Ended September 30, 2007 |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|-------------|--------|-------------------------------------------|--------|
| OPERATING      ACTIVITIES:                                                                                        |   |                                      |        |   |                                      |   |
| Net      cash used in operating activities                                                                        |   | $                                         | (78,953,089 | )      |                                      | $      | (38,048,344 | ) |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| INVESTING      ACTIVITIES:                                                                                        |   |                                      |        |   |                                      |   |   |   |
| Purchases      of investments                                                                                     |   |                                      | (31,470,177 | )      |                                      |   | (145,643,885 | ) |
| Proceeds      from sale of investments                                                                            |   |                                      | 109,577,315 |   |                                      |   | 5,128,795 |   |
| Proceeds      from maturity of investments                                                                        |   |                                      | 62,192,968  |   |                                      |   | 44,609,747 |   |
| Proceeds      from the sale of water storage                                                                      |   |                                      | 11,749,900  |   |                                      |   |   |   |
| Real      estate and water asset capital expenditure                                                              |   |                                      | (2,207,511  | )      |                                      |   | (35,044,316 | ) |
| Net      cash provided by (used in) investing activities                                                          |   |                                      | 149,842,495 |   |                                      |   | (130,949,659 | ) |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| FINANCING      ACTIVITIES:                                                                                        |   |                                      |        |   |                                      |   |   |   |
| Proceeds      from common stock offering, net                                                                     |   |                                      |        |   |                                      |   | 100,141,935 |   |
| Sale      of treasury stock for deferred compensation plans                                                       |   |                                      | 28,374      |   |                                      |   | 29,392 |   |
| Excess      tax benefits from stock based payment arrangements                                                    |   |                                      | 541,267     |   |                                      |   | 4,905,804 |   |
| Proceeds      from borrowings                                                                                     |   |                                      | 6,152,331   |   |                                      |   |   |   |
| Net      cash provided by financing activities                                                                    |   |                                      | 6,721,972   |   |                                      |   | 105,077,131 |   |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| Effect      of exchange rate changes on cash                                                                      |   |                                      | (8,825,027  | )      |                                      |   | (1,294,139 | ) |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| INCREASE      (DECREASE) IN CASH AND CASH EQUIVALENTS                                                             |   |                                      | 68,786,352  |   |                                      |   | (65,215,011 | ) |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| CASH      AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                               |   |                                      | 70,791,025  |   |                                      |   | 136,621,578 |   |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| CASH      AND CASH EQUIVALENTS, END OF PERIOD                                                                     |   | $                                         | 139,577,377 |   |                                      | $      | 71,406,567 |   |
|                                                                                                              |   |                                      |        |   |                                      |   |   |   |
| SUPPLEMENTAL      CASH FLOW INFORMATION:                                                                          |   |                                      |        |   |                                      |   |   |   |
| Cash      paid for income taxes                                                                                   |   | $                                         | 13,643,030  |   |                                      | $      | 5,461,341 |   |
| Non-cash      investing and financing activities:                                                                 |   |                                      |        |   |                                      |   |   |   |
| Construction      in progress costs incurred but not paid                                                         |   | $                                         | 1,280,783   |   |                                      | $      | 15,510,891 |   |
| Mortgage      incurred to purchase land                                                                           |   | $                                         | 3,374,186   |   |                                      | $      | 5,180,000 |   |
| Withholding      taxes recorded in additional paid in capital related to stock appreciation      rights exercised |   |                                      |        |   |                                      | $      | 5,398,767 |   |

Theaccompanying notes are an integral part of the condensed consolidated financialstatements.    

----

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

|                                   |  RSA         |
|----------------------------------------|-------------------|
| Outstanding      at January 1, 2008    |        -     |
| Granted                                |        4,200 |
|                                   |        -     |
| Outstanding      at September 30, 2008 |        4,200 |

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

|                                              | SAR           |   | Weighted      AverageExercise      Price |              | Weighted      AverageContractual      Term Remaining |
|---------------------------------------------------|---------------|--------|------------------------------------------|-------------------|------------------------------------------------------|
| Outstanding      at January 1, 2008               | 2,007,018     |   |  $                                  | 36.87             |                                                 |   |
| Granted                                           |        - |   |                                     |              |                                                 |   |
| Exercised                                         | (12,000)      |   |  $                                  |        33.67 |                                                 |   |
| Outstanding      at September 30, 2008            | 1,995,018     |   |  $                                  | 36.89             |                                                 | 7.7      years |
| Vested      and exercisable at September 30, 2008 | 1,719,190     |   |  $                                  | 35.82             |                                                 | 7.6      years |

|                                |   | SAR    |    |   | Weighted      Average GrantDate      Fair Value |   |
|-------------------------------------|--------|--------|---------|--------|-------------------------------------------------|--------|
| Unvested      at January 1, 2008    |   |   | 497,252 |   |                                            | $      | 18.24 |   |
| Granted                             |   |   | -       |   |                                            |   |   |   |
| Vested                              |   |   | 221,424 |   |                                            |   | 18.15 |   |
|                                |   |   |    |   |                                            |   |   |   |
| Unvested      at September 30, 2008 |   |   | 275,828 |   |                                            | $      | 18.31 |   |

----

----

|                                   | Quoted      Prices In Active      | Significant      Other | Significant         |                               |
|----------------------------------------|-----------------------------------|------------------------|--------------------------|------------------------------------|
|                                   | Markets      for Identical Assets | Observable      Inputs | Unobservable      Inputs |                               |
| Assets                                 | (Level      1)                    | (Level      2)         | (Level      3)           | Balance      at September 30, 2008 |
| Available      for sale securities (A) | $189,591,502                      | $3,391,380             |                     |        $192,982,882           |
| Liabilities                            |                              |                   |                     |                               |
| Deferred      compensation (B)         | $34,605,873                       |                   |                     |        $34,605,873            |

| (A) | Where      there are quoted market prices that are readily available in an active      market, securities are classified as Level 1 of the valuation      hierarchy.  Level 1 marketable equity securities are valued      using quoted market prices multiplied by the number of shares owned and      debt securities are valued using a market quote in an active      market.  Level 2 available for sale securities include      securities where the markets are not active, that is where there are few      transactions, or the prices are not current or the prices vary      considerably over time. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (B) | Deferred      compensation plans are compensation plans directed by the Company and      structured as a rabbi trust for certain executives and non-employee      directors.  The investment assets of the rabbi trust are valued      using quoted market prices multiplied by the number of shares held in each      trust account including the shares of PICO Holdings common stock held in      the trusts. The related deferred compensation liability represents the      fair value of the investmentassets. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                         |   | Three      Months Ended September 30, 2008 |        |   | Three      Months Ended September 30, 2007 |   |             | Nine      Months Ended September 30, 2008 |   |   | Nine      Months Ended September 30, 2007 |   |
|--------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|-------------|--------|--------------------------------------------|--------|------------------|-------------------------------------------|--------|--------|-------------------------------------------|--------|
| Net      income (loss)                                                                                       |   | $                                          | 532,517     |   |                                       | $      | 473,534          |                                      |   | $      | 27,128,499                                |   |   | $ | (2,718,718 | ) |
| Net unrealized      appreciation (depreciation) during the period on available for sale      securities |   |                                       | (11,741,988 | )      |                                       |   |   3,515,628 |                                      |   |   | (49,050,037                               | )      |   |   |   23,488,873 |   |
| Net      change in foreign currency translation                                                              |   |                                       | (6,996,290  | )      |                                       |   | 950,645          |                                      |   |   | (6,225,055                                | )      |   |   | 2,007,898 |   |
| Total      comprehensive income (loss)                                                                       |   | $                                          | (18,205,761 | )      |                                       | $      | 4,939,807        |                                      |   | $      | (28,146,593                               | )      |   | $ | 22,778,053 |   |

|                                                          |   | September      30, 2008 |       |   | December      31, 2007 |   |
|---------------------------------------------------------------|--------|-------------------------|------------|--------|------------------------|--------|
| Unrealized      appreciation on available for sale securities |   | $                       | 33,406,462 |   |                   | $      | 82,456,499 |   |
| Foreign      currency translation                             |   |                    | (9,212,116 | )      |                   |   | (2,987,061 | ) |
| Accumulated      other comprehensive income                   |   | $                       | 24,194,346 |   |                   | $      | 79,469,438 |   |

----

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

|                                             |   | At      September 30, 2008 |        |   | At      December 31, 2007 |   |
|--------------------------------------------------|--------|----------------------------|-------------|--------|---------------------------|--------|
| Total      Assets:                               |   |                       |        |   |                      |   |
| Water      Resource and Water Storage Operations |   | $                          | 229,881,238 |   |                      | $      | 231,863,512 |   |
| Real      Estate Operations                      |   |                       | 78,656,365  |   |                      |   | 83,750,531 |   |
| Insurance      Operations in Run Off             |   |                       | 197,66,737  |   |                      |   | 221,348,861 |   |
| Corporate                                        |   |                       | 130,466,622 |   |                      |   | 139,379,376 |   |
| Total      assets                                |   | $                          | 636,170,962 |   |                      | $      | 676,342,280 |   |

|                                                          |   | Three      Months Ended September 30, |       |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------|--------|---------------------------------------|------------|--------|--------------------------------------|--------|
|                                                          |   | 2008                                  |       |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
| Water Resource and Water Storage    Operations                |   | $                                     | 9,145,309  |   |                                 | $      | 4,600,369 |   |   | $ | 10,342,490 |   |   | $ | 7,067,360 |   |
| Real Estate Operations                                        |   |                                  | 953,658    |   |                                 |   | 2,590,612 |   |   |   | 4,119,835 |   |   |   | 9,057,837 |   |
| Insurance Operations in Run Off                               |   |                                  | (507,898   | )      |                                 |   | 1,510,656 |   |   |   | 5,999,673 |   |   |   | 4,780,064 |   |
| Corporate                                                     |   |                                  | 241,422    |   |                                 |   | (286,138 | ) |   |   | 47,771,053 |   |   |   | 3,537,915 |   |
| Total      Revenues                                           |   | $                                     | 9,832,491  |   |                                 | $      | 8,415,499 |   |   | $ | 68,233,051 |   |   | $ | 24,443,176 |   |
|                                                          |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income      (Loss) Before Income Taxes and Minority Interest: |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Water      Resource and Water Storage Operations              |   | $                                     | 7,374,882  |   |                                 | $      | 2,933,054 |   |   | $ | 5,186,921 |   |   | $ | (4,657,476 | ) |
| Real      Estate Operations                                   |   |                                  | (480,869   | )      |                                 |   | 1,486,908 |   |   |   | 381,911 |   |   |   | 5,325,497 |   |
| Insurance      Operations in Run Off                          |   |                                  | (1,010,152 | )      |                                 |   | 1,266,268 |   |   |   | 4,697,658 |   |   |   | 3,829,498 |   |
| Corporate                                                     |   |                                  | 1,790,029  |   |                                 |   | (4,022,768 | ) |   |   | 45,692,314 |   |   |   | (7,078,347 | ) |
| Income      (Loss) Before Income Taxes and Minority Interest  |   | $                                     | 7,673,890  |   |                                 | $      | 1,663,462 |   |   | $ | 55,958,803 |   |   | $ | (2,580,828 | ) |

----

Discussion and Analysis of Financial Condition andResults of Operations

| · | Water Resource and Water Storage      Operations;                                                                                                                                                                                                                                                            |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Real Estate      Operations;                                                                                                                                                                                                                                                                                 |
| · | Insurance Operations in      “Run Off”; and                                                                                                                                                                                                                                                      |
| · | Corporate      (formerly known as “Business Acquisitions &      Financing”).  At September 30, 2008, this segment contains cash,      the assets and related liabilities of deferred compensation plans,      interests in small businesses, and other parent company      assets. |

| · | 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, Idaho, California, and Colorado;                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | 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 446,000 acres of former railroad land in Nevada, and certain      mineral rights and water rights related to theproperty;                |
| · | 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 property &      casualty insurance and workers’ compensation loss reserves;      and                                                                                                                                        |
| · | Global      Equity AG, a holding company incorporated in      Switzerland.  Following the sale of our interest in Jungfraubahn      Holding AG (“Jungfraubahn”) in April 2008, Global Equity AG’s assets      principally consist of bank time deposits denominated in U.S. Dollars and      Swiss Francs. |

|                                                          |   | Three      Months Ended September 30, |       |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------|--------|--------------------------------------------|------------|--------|--------------------------------------|--------|
|                                                          |   | 2008                                       |       |   | 2007                                 |   |   | 2008 |   |   | 2007 |   |
| Revenues:                                                     |   |                                       |       |   |                                 |   |   |   |   |   |   |   |
| Water Resource and Water Storage    Operations                |   | $                                          | 9,145,000  |   |                                 | $      | 4,600,000 |   |   | $ | 10,343,000 |   |   | $ | 7,067,000 |   |
| Real Estate Operations                                        |   |                                       | 954,000    |   |                                 |   | 2,591,000 |   |   |   | 4,120,000 |   |   |   | 9,058,000 |   |
| Insurance Operations in Run Off                               |   |                                       | (508,000   | )      |                                 |   | 1,511,000 |   |   |   | 5,999,000 |   |   |   | 4,780,000 |   |
| Corporate                                                     |   |                                       | 241,000    |   |                                 |   | (287,000 | )  |   |   | 47,771,000 |   |   |   | 3,538,000 |   |
| Total      revenues                                           |   | $                                          | 9,832,000  |   |                                 | $      | 8,415,000 |   |   | $ | 68,233,000 |   |   | $ | 24,443,000 |   |
|                                                          |   |                                       |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income      (loss) Before Income Taxes and Minority Interest: |   |                                       |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Water      Resource and Water Storage Operations              |   | $                                          | 7,375,000  |   |                                 | $      | 2,933,000 |   |   | $ | 5,187,000 |   |   | $ | (4,657,000 | ) |
| Real      Estate Operations                                   |   |                                       | (481,000   | )      |                                 |   | 1,487,000 |   |   |   | 382,000 |   |   |   | 5,325,000 |   |
| Insurance      Operations in Run Off                          |   |                                       | (1,010,000 | )      |                                 |   | 1,266,000 |   |   |   | 4,698,000 |   |   |   | 3,829,000 |   |
| Corporate                                                     |   |                                       | 1,790,000  |   |                                 |   | (4,023,000 | )  |   |   | 45,692,000 |   |   |   | (7,078,000 | ) |
| Income      (loss) Before Income Taxes and Minority Interest  |   | $                                          | 7,674,000  |   |                                 | $      | 1,663,000 |   |   | $ | 55,959,000 |   |   | $ | (2,581,000 | ) |

----

----

WATER RESOURCE AND WATER STORAGE OPERATIONS

|                                                         | Three      Months Ended September 30, |        | Nine      Months Ended September 30, |   |
|--------------------------------------------------------------|---------------------------------------|-------------|--------------------------------------|--------|
|                                                         | 2008                                  |        | 2007                                 |   | 2008 |   | 2007 |   |
| Revenues:                                                    |                                  |        |                                 |   |   |   |   |   |
| Sale      of real estate and water assets                    | $                                     | 8,849,000   |                                 | $      | 412,000 |   | $ | 9,095,000 |   | $ | 20,000 |   |
| Net      investment income                                   |                                  | 144,000     |                                 |   | 1,286,000 |   |   | 893,000 |   |   | 3,697,000 |   |
| Gain      on release of restrictions on land                 |                                  |        |                                 |   | 3,466,000 |   |   |   |   |   | 3,466,000 |   |
| Other                                                        |                                  | 152,000     |                                 |   | (164,000) |   |   | 355,000 |   |   | (116,000) |   |
| Segment      total revenues                                  | $                                     | 9,145,000   |                                 | $      | 4,600,000 |   | $ | 10,343,000 |   | $ | 7,067,000 |   |
|                                                         |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Expenses:                                                    |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
| Cost      of real estate and water assets sold               | $                                     | (29,000)    |                                 | $      | $(2,000) |   | $ | (70,000) |   | $ | (5,000) |   |
| Depreciation      and amortization                           |                                  | (265,000)   |                                 |   | (254,000) |  |   | (825,000) |   |   | (771,000) |   |
| Overhead                                                     |                                  | (791,000)   |                                 |   | (591,000) |   |   | (2,363,000) |   |   | (1,629,000) |   |
| Project      expenses                                        |                                  | (685,000)   |                                 |   | (820,000) |   |   | (1,898,000) |   |   | (9,319,000) |   |
| Segment      total expenses                                  | $                                     | (1,770,000) |                                 | $      | (1,667,000) |   | $ | (5,156,000) |   | $ | (11,724,000) |   |
| Income      (loss) before income taxes and minority interest | $                                     | 7,375,000   |                                 | $      | 2,933,000 |   | $ | 5,187,000 |   | $ | (4,657,000) |   |

| · | the      operation and maintenance of the Vidler Arizona Recharge      Facility;                                                                                                                                                                   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | the      utilization of water rights at Fish Springs Ranch as a future municipal      water supply for the north valleys of the Reno, Nevada    area;                                                                                              |
| · | the      operation of our farm properties in Idaho 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”)      by Fish Springs Ranch, LLC, a 51% owned subsidiary of    Vidler. |

----

REAL ESTATE OPERATIONS

|                                                              | Three      Months Ended September 30, |        | Nine      Months Ended September 30, |   |
|-------------------------------------------------------------------|---------------------------------------|-------------|--------------------------------------|--------|
|                                                              | 2008                                  |        | 2007                                 |   | 2008 |   | 2007 |   |
| Revenues:                                                         |                                  |        |                                 |   |   |   |   |   |
| Sale      of real estate and water assets                         | $                                     | 297,000     |                                 | $      | 1,465,000 |   | $ | 1,357,000 |   | $ | 5,884,000 |   |
| Net      investment income                                        |                                  | 439,000     |                                 |   | 926,000 |   |   | 1,975,000 |   |   | 2,463,000 |   |
| Other                                                             |                                  | 218,000     |                                 |   | 200,000 |   |   | 788,000 |   |   | 711,000 |   |
| Segment      total revenues                                       | $                                     | 954,000     |                                 | $      | 2,591,000 |   | $ | 4,120,000 |   | $ | 9,058,000 |   |
| Expenses:                                                         |                                  |        |                                 |   |   |   |   |   |   |   |   |   |
|  Cost      of real estate and water assets sold              | $                                     | (116,000)   |                                 | $      | (424,000) |   | $ | (398,000) |   | $ | (1,893,000) |   |
| Operating      expenses                                           |                                  | (1,319,000) |                                 |   | (680,000) |   |   | (3,340,000) |   |   | (1,840,000) |   |
| Segment      total expenses                                       | $                                     | (1,435,000) |                                 | $      | (1,104,000) |   | $ | (3,738,000) |   | $ | (3,733,000) |   |
| Income (loss)      before income taxes and minority interest | $                                     | (481,000)   |                                 | $      | 1,487,000 |   | $ | 382,000 |   | $ | 5,325,000 |   |

----

INSURANCE OPERATIONS IN RUN OFF

|                                                                                  |   | Three      Months Ended September 30, |       |   | Nine      Months Ended September 30, |   |
|---------------------------------------------------------------------------------------|--------|--------------------------------------------|------------|--------|-------------------------------------------|--------|
|                                                                                  |   | 2008                                       |       |   | 2007                                      |   |   | 2008 |   |   | 2007 |   |
| Revenues:                                                                             |   |                                       |       |   |                                      |   |   |   |   |   |   |   |
| Net      investment income                                                            |   | $                                          | 845,000    |   |                                      | $      | 866,000 |   |   | $ | 2,736,000 |   |   | $ | 2,673,000 |   |
| Net      realized gain or (loss) on sale or impairment      of  investments |   |                                       | (1,379,000 | )      |                                      |   | 521,000 |   |   |   | 3,171,000 |   |   |   | 1,953,000 |   |
| Other                                                                                 |   |                                       | 26,000     |   |                                      |   | 124,000 |   |   |   | 92,000 |   |   |   | 154,000 |   |
| Segment      total revenues                                                           |   | $                                          | (508,000   | )      |                                      | $      | 1,511,000 |   |   | $ | 5,999,000 |   |   | $ | 4,780,000 |   |
|                                                                                  |   |                                       |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                             |   |                                       |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Segment      total expenses                                                           |   | $                                          | (502,000   | )      |                                      | $      | (245,000 | ) |   | $ | (1,302,000 | ) |   | $ | (951,000 | ) |
|                                                                                  |   |                                       |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Income      Before Taxes:                                                             |   |                                       |       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Physicians      Insurance Company of Ohio                                             |   | $                                          | 498,000    |   |                                      | $      | 831,000 |   |   | $ | 5,660,000 |   |   | $ | 2,821,000 |   |
| Citation      Insurance Company                                                       |   |                                       | (1,508,000 | )      |                                      |   | 435,000 |   |   |   | ( 962,000 | ) |   |   | 1,008,000 |   |
| Income      (loss) before income taxes and minority interest                          |   | $                                          | (1,010,000 | )      |                                      | $      | 1,266,000 |   |   | $ | 4,698,000 |   |   | $ | 3,829,000 |   |

| PHYSICIANS      INSURANCE COMPANY OF OHIO -- LOSS AND LOSS ADJUSTMENT EXPENSE      RESERVES |   |
|---------------------------------------------------------------------------------------------|--------|
|                                                                                        |   | September 30,      2008 |   |   | December      31, 2007 |   |
|                                                                                        |   |   |   |   |   |   |
| Direct      Reserves                                                                        |   | $ | 6,456,000 |   |   | $ | 6,603,000 |   |
| Ceded      Reserves                                                                         |   |   | (83,000 | ) |   |   | (83,000 | ) |
| Net      Medical Professional Liability Insurance Reserves                                  |   | $ | 6,373,000 |   |   | $ | 6,520,000 |   |

| CITATION      INSURANCE COMPANY -- LOSS AND LOSS ADJUSTMENT EXPENSE    RESERVES |   |
|---------------------------------------------------------------------------------|--------|
|                                                                            |   | September 30,      2008 |   |   | December      31, 2007 |   |
| Property      & Casualty Insurance                                          |   |   |   |   |   |   |
| Direct      Reserves                                                            |   | $ | 3,443,000 |   |   | $ | 3,587,000 |   |
| Ceded      Reserves                                                             |   |   | ( 435,000 | ) |   |   | ( 438,000 | ) |
| Net      Property & Casualty Insurance Reserves                             |   | $ | 3,008,000 |   |   | $ | 3,149,000 |   |
|                                                                            |   |   |   |   |   |   |   |   |
| Workers’      Compensation                                                |   |   |   |   |   |   |   |   |
| Direct      Reserves                                                            |   | $ | 20,957,000 |   |   | $ | 22,186,000 |   |
| Ceded      Reserves                                                             |   |   | (15,541,000 | ) |   |   | (16,133,000 | ) |
| Net      Workers’ Compensation Insurance Reserves                         |   | $ | 5,416,000 |   |   | $ | 6,053,000 |   |
|                                                                            |   |   |   |   |   |   |   |   |
| Total      Reserves                                                             |   | $ | 8,424,000 |   |   | $ | 9,202,000 |   |

----

CORPORATE

|                                                               |   | Three      Months Ended September 30, |      |   | Nine      Months Ended September 30, |   |
|--------------------------------------------------------------------|--------|--------------------------------------------|-----------|--------|-------------------------------------------|--------|
|                                                               |   | 2008                                       |      |   | 2007                                      |   |   | 2008 |   |   | 2007 |   |
| Revenues:                                                          |   |                                       |      |   |                                      |   |   |   |   |   |   |   |
| Net      realized gain (loss) on sale or impairment of investments |   | $                                          | (959,000  | )      |                                      | $      | (1,398,000 | ) |   | $ | 44,562,000 |   |   | $  | (1,392,000 | )  |
| Net      investment income                                         |   |                                       | 1,171,000 |   |                                      |   | 1,104,000 |   |   |   | 3,105,000 |   |   |   | 4,890,000 |   |
| Other                                                              |   |                                       | 29,000    |   |                                      |   | 7,000 |   |   |   | 104,000 |   |   |   | 40,000 |   |
| Segment      total revenues                                        |   | $                                          | 241,000   |   |                                      | $      | (287,000 | ) |   | $ | 47,771,000 |   |   | $  | 3,538,000 |   |
|                                                               |   |                                       |      |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Expenses:                                                          |   |                                       |      |   |                                      |   |   |   |   |   |   |   |   |   |   |   |
| Stock      appreciation rights expense                             |   | $                                          | (997,000  | )      |                                      | $      | (3,471,000 | ) |   | $ | (2,991,000 | ) |   | $ | (3,471,000 | ) |
| Foreign      exchange gain                                         |   |                                       | 3,472,000 |   |                                      |   | 1,202,000 |   |   |   | 7,267,000 |   |   |   | 1,284,000 |   |
|  Other                                                        |   |                                       | (926,000  | )      |                                      |   | (1,467,000 | ) |   |   | (6,355,000 | ) |   |   | (8,429,000 | ) |
| Segment      total expenses                                        |   | $                                          | 1,549,000 |   |                                      | $      | (3,736,000 | ) |   | $ | (2,079,000 | ) |   | $ | (10,616,000 | ) |
| Income      (loss) before income taxes and minority interest       |   | $                                          | 1,790,000 |   |                                      | $      | (4,023,000 | ) |   | $ | 45,692,000 |   |   | $ | (7,078,000 | ) |

| · | included      SAR expense of $997,000 (see SAR      Expense below);                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | were      reduced by foreign exchange gains of $3.5 million, consisting of the $6.5      million US$ deposit foreign exchange gain discussed above, which was      partially offset by a $3 million foreign currency translation expense on      an inter-company loan      (see below); and |
| · | were      reduced by a $2.4 million decrease in deferred compensation      expense.                                                                                                                                                                                                          |

| · | included      a $3.5 million expense resulting from the granting, and partial vesting,      of additional SAR during the third quarter of 2007; and                                           |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | were      reduced by a $1.4 million decrease in deferred compensation expense, and      by a $1.2 million foreign currency translation benefit on an inter-company      loan described below. |

| · | included      SAR expense of $3 million (see SAR      Expense below);                                                                                                                                                                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | were      reduced by foreign exchange gains of $7.3 million, consisting of the $7.1      million US$ deposit foreign currency gain described above and a $139,000      foreign currency translation benefit on an inter-company loan described      below; and |
| · | were      reduced by a $3.3 million decrease in deferred compensation      expense.                                                                                                                                                                            |

| · |   | included      a $3.5 million expense for SAR;                                                        |
|--------|--------|------------------------------------------------------------------------------------------------------|
| · |   | included      legal costs of the litigation against Exegy, Inc. of $1.3      million;  and |

| · |   | were      reduced by the $1.4 million decrease in deferred compensation expense, and      by a $1.3 million foreign currency translation benefit on an inter-company      loan described below. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | the      Water Resource and Water Storage Operations segment contains cash of $24      million; |
|--------------------|-------------------------------------------------------------------------------------------------|

| ·   | the      Real Estate Operations segment holds cash of $21.1  million; |
|--------------------|-----------------------------------------------------------------------|

| ·   | our      insurance companies have cash of $3 million, fixed-income securities with      a market value of $17.7 million, and equities with a market value of      $147.4 million; and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the      Corporate segment contains cash of $85.3 million.  In addition,      cash of $6.1 million, fixed-income securities with a market value of $16.9      million, and equity securities with a market value of $10.3 million are      held in deferred compensation Rabbi Trusts within the Corporate segment,      which will be used to pay the deferred compensation      liabilities. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| · | Nevada      Land is actively selling real estate which has reached its highest and      best use. Nevada Land’s principal sources of cash flow are the proceeds of      sales of real estate for cash, 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 positive cash flow.  We are      redeploying part of the cash flow from Nevada Land to build the business      of UCP, by acquiring lots and un-entitled land in selected California      markets; 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.   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                  | FAIR      VALUE    |                   |
|-------------------------------------------------------|--------------------|------------------------|
| ISSUER                                                | SEPTEMBER 30, 2008 |        PERCENTAGE |
|                                                  |               |                   |
| Government-sponsored      enterprises                 | $7,791,063         | 43%                    |
| Other      investment grade corporate                 | 5,955,459          | 34%                    |
| Non-investment      grade corporate                   | 673,150            | 4%                     |
| State      of California general obligation municipal | 2,085,700          | 12%                    |
| U.S.      Treasury                                    | 1,181,563          | 7%                     |
|                                                  | $17,686,935        | 100%                   |

----

Universal Shelf Registration Statement

Item 3:  Quantitative and Qualitative Disclosure about MarketRisk

Item 4:  Controls and Procedures

Item 1:  Legal Proceedings

Item 4:  Submission of Matters to a Vote of SecurityHolders

| Exhibit      Number |   | Description                                                                                                                                                   |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)                |   | Amended      and Restated Articles of Incorporation of PICO. (1)                                                                                              |
| 3(ii)               |   | Amended      and Restated By-laws of PICO. (2)                                                                                                                |
| 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 Exhibit 3(i) in the Form 10-Q filed with the SEC on      November 7, 2007.  |
|--------|-----|---------------------------------------------------------------------------------------------------------------|
|   | (2) | Incorporated      by reference to Exhibit 3(ii) in the Form 8-K filed with the SEC on      February 29, 2008. |

----

----