**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**FORM      10-Q**

**(X)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**(      ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES      EXCHANGE ACT OF 1934**

**PICO      HOLDINGS, INC.**

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

**875      Prospect Street, Suite 301**

**La      Jolla, California 92037**

**(858)      456-6022**

----

**PICO      HOLDINGS, INC.**

**FORM      10-Q**

**For      the Three and Six Months Ended June 30, 2007**

**TABLE      OF CONTENTS**

|                                                        |                                                                                                                                                         |
|-------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                        | **Page                No.**                                                                                                                                  |
|                                                        |                                                                                                                                                         |
| **Part                I:  Financial Information** |                                                                                                                                                         |
|                                                        |                                                                                                                                                         |
| Item                1:                                      | Condensed                Consolidated Financial Statements (Unaudited)                                                                                       |   |
|                                                        |                                                                                                                                                         |   |
|                                                        | Condensed                Consolidated Balance Sheets as of June 30, 2007 and December 31,                2006                                                | 2 |
|                                                        |                                                                                                                                                         |   |
|                                                        | Condensed                Consolidated Statements of Operations for the Three and Six Months                Ended                June 30, 2007 and 2006  | 3 |
|                                                        |                                                                                                                                                         |   |
|                                                        | Condensed                Consolidated Statements of Cash Flows for the Six Months Ended June                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                                |  8 |
|                                                        |                                                                                                                                                         |   |
| Item                3:                                      | Quantitative                and Qualitative Disclosure About Market                Risk                                                                      |  13 |
|                                                        |                                                                                                                                                         |   |
| Item                4:                                      | Controls                and Procedures                                                                                                                       |  13 |
|                                                        |                                                                                                                                                         |   |
| **Part                II:  Other Information**    |                                                                                                                                                         |
|                                                        |                                                                                                                                                         |
| Item                1:                                      | Legal                Proceedings                                                                                                                             |   14 |
|                                                        |                                                                                                                                                         |   |
| Item                1A:                                     | Risk                Factors                                                                                                                                  |  14 |
|                                                        |                                                                                                                                                         |   |
| Item                2:                                      | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                   |  14 |
|                                                        |                                                                                                                                                         |   |
| Item                3:                                      | Defaults                Upon Senior Securities                                                                                                               |  14 |
|                                                        |                                                                                                                                                         |   |
| Item                4:                                      | Submission                of Matters to a Vote of Security Holders                                                                                           |  14 |
|                                                        |                                                                                                                                                         |   |
| Item                5:                                      | Other                Information                                                                                                                             |  14 |
|                                                        |                                                                                                                                                         |   |
| Item                6:                                      | Exhibits                                                                                                                                                     |  15 |

----

**Part      I:**
**Financial      Information**

**Item      I:**
**Condensed      Consolidated Financial Statements**

**PICO      HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

|                                                                                                                                                                                         | June                  30, 2007 |   | December                  31, 2006 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------|------------------------------------|
| **ASSETS**                                                                                                                                                                                   |                           |   |                               |
| Investments                                                                                                                                                                                  | $                  383,067,287 |   | $                  271,961,941     |
| Cash                  and cash equivalents                                                                                                                                                   | 112,361,708                    |   | 136,621,578                        |
| Notes                  and other receivables, net                                                                                                                                            | 16,916,723                     |   | 17,177,827                         |
| Reinsurance                  receivables                                                                                                                                                     | 16,841,265                     |   | 17,290,039                         |
| Real                  estate and water assets, net                                                                                                                                           | 142,157,039                    |   | 102,538,859                        |
| Property                  and equipment, net                                                                                                                                                 | 614,134                        |   | 518,564                            |
| Other                  assets                                                                                                                                                                | 6,478,843                      |   | 2,934,131                          |
| Total                  assets                                                                                                                                                                | $                  678,436,999 |   | $                  549,042,939     |
|                                                                                                                                                                                         |                           |   |                               |
| **LIABILITIES                  AND SHAREHOLDERS' EQUITY**                                                                                                                                    |                           |   |                               |
| Unpaid                  losses and loss adjustment expenses                                                                                                                                  | $                  38,432,265  |   | $                  41,083,301      |
| Deferred                  compensation                                                                                                                                                       | 54,866,213                     |   | 49,776,043                         |
| Bank                  and other borrowings                                                                                                                                                   | 12,690,355                     |   | 12,720,558                         |
| Deferred                  income taxes, net                                                                                                                                                  | 26,165,562                     |   | 17,952,916                         |
| Other                  liabilities                                                                                                                                                           | 23,832,041                     |   | 22,282,822                         |
| Total                  liabilities                                                                                                                                                           | 155,986,436                    |   | 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                                                                                                                                                  | 431,246,138                    |   | 331,582,308                        |
| Accumulated                  other comprehensive income                                                                                                                                      | 81,981,177                     |   | 60,950,679                         |
| Retained                  earnings                                                                                                                                                           | 87,483,218                     |   | 90,968,815                         |
|                                                                                                                                                                                         | 600,733,792                    |   | 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                                                                                                                                                  | 522,450,563                    |   | 405,227,299                        |
| Total                  liabilities and shareholders' equity                                                                                                                                  | $                  678,436,999 |   | $                  549,042,939     |

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

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**PICO      HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

|                                                                     | Three                  Months Ended June 30, 2007 |   | Three                  Months Ended June 30,                  2006   |   | Six                  Months Ended June 30,                  2007  |   | Six                  Months Ended June 30,                  2006  |
|--------------------------------------------------------------------------|---------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|------------------------------------------------------------------------|
| Revenues:                                                                |                                              |   |                                                                           |   |                                                                   |   |                                                                   |
| Net                  investment income                                   | $                  5,730,337                      |   | $                  4,431,215                                                   |   | $                  9,542,404                                           |   | $                  6,503,541                                           |
| Net                  realized gain on investments                        | 210,185                                           |   | 687,349                                                                        |   | 1,618,093                                                              |   | 15,373,296                                                             |
| Sale                  of real estate and water assets                    | 2,117,378                                         |   | 3,832,629                                                                      |   | 4,426,376                                                              |   | 5,088,964                                                              |
| Rents,                  royalties and lease income                       | 151,381                                           |   | 448,128                                                                        |   | 301,539                                                                |   | 634,983                                                                |
| Other                                                                    | 104,995                                           |   | 148,700                                                                        |   | 139,265                                                                |   | 193,876                                                                |
| Total                  revenues                                          | 8,314,276                                         |   | 9,548,021                                                                      |   | 16,027,677                                                             |   | 27,794,660                                                             |
| Costs                  and Expenses:                                     |                                              |   |                                                                           |   |                                                                   |   |                                                                   |
| Operating                  and other costs                               | 13,026,793                                        |   | 4,203,431                                                                      |   | 18,252,066                                                             |   | 8,361,705                                                              |
| Cost                  of real estate and water assets sold               | 704,342                                           |   | 1,301,736                                                                      |   | 1,471,206                                                              |   | 1,681,622                                                              |
| Depreciation                  and amortization                           | 272,283                                           |   | 362,844                                                                        |   | 548,695                                                                |   | 675,407                                                                |
| Interest                  expense                                        |                                              |   | 111,222                                                                        |   |                                                                   |   | 210,760                                                                |
| Total                  costs and expenses                                | 14,003,418                                        |   | 5,979,233                                                                      |   | 20,271,967                                                             |   | 10,929,494                                                             |
| Income                  (loss) before income taxes and minority interest | (5,689,142)                                       |   | 3,568,788                                                                      |   | (4,244,290)                                                            |   | 16,865,166                                                             |
| Provision                  (benefit) for income taxes                    | (1,975,946)                                       |   | 1,662,176                                                                      |   | (1,052,038)                                                            |   | 6,211,490                                                              |
| Income                  (loss) before minority interest                  | (3,713,196)                                       |   | 1,906,612                                                                      |   | (3,192,252)                                                            |   | 10,653,676                                                             |
| Minority                  interest in loss of subsidiaries               |                                              |   | 12,950                                                                         |   |                                                                   |   | 25,409                                                                 |
| Income                  (loss) from continuing operations                | (3,713,196)                                       |   | 1,919,562                                                                      |   | (3,192,252)                                                            |   | 10,679,085                                                             |
| Loss                  from discontinued operations, net of tax           |                                              |   | (1,537,379)                                                                    |   |                                                                   |   | (3,078,701)                                                            |
| Net                  income (loss)                                       | $                  (3,713,196)                    |   | $                  382,183                                                     |   | $                  (3,192,252)                                         |   | $                  7,600,384                                           |
|                                                                     |                                              |   |                                                                           |   |                                                                   |   |                                                                   |
|                                                                     |                                              |   |                                                                           |   |                                                                   |   |                                                                   |
| Net                  income (loss) per common share - basic and diluted: |                                              |   |                                                                           |   |                                                                   |   |                                                                   |
| Income                  (loss) from continuing operations                | $                  (0.20)                         |   | $                  0.13                                                        |   | $                  (0.18)                                              |   | $                  0.76                                                |
| Loss                  from discontinued operations                       |                                              |   | (0.10)                                                                         |   |                                                                   |   | (0.22)                                                                 |
| Net                  income (loss) per common share                      | $                  (0.20)                         |   | $                  0.03                                                        |   | $                  (0.18)                                              |   | $                  0.54                                                |
| Weighted                  average shares outstanding                     | 18,769,015                                        |   | 14,927,125                                                                     |   | 17,811,337                                                             |   | 14,099,282                                                             |

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

----

**PICO      HOLDINGS, INC. AND SUBSIDIARIES**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

|                                                                                                                                     |   | Six                  Months Ended June 30,                  2007  |        | Six                  Months Ended June 30,                  2006   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------|
| **OPERATING                  ACTIVITIES:**                                                                                               |   |                                                                        |   |                                                                              |
| Net                  cash used by operating activities - continuing operations                                                           |   | $                  (25,458,736)                                             |   | $                  (10,018,737)                                                   |
| Net                  cash used by operating activities - discontinued                  operations                                        |   |                                                                        |   | (2,340,970)                                                                       |
|                                                                                                                                     |   | (25,458,736)                                                                |   | (12,359,707)                                                                      |
| **INVESTING                  ACTIVITIES:**                                                                                               |   |                                                                        |   |                                                                              |
| Purchases                  of investments                                                                                                |   | (98,799,107)                                                                |   | (61,099,224)                                                                      |
| Proceeds                  from sale of investments                                                                                       |   | 3,848,950                                                                   |   | 32,494,541                                                                        |
| Proceeds                  from maturity of investments                                                                                   |   | 18,213,245                                                                  |   | 39,735,857                                                                        |
| Purchases                  of property and equipment and costs capitalized to water                  infrastructure                      |   | (27,138,070)                                                                |   | (9,138,601)                                                                       |
| Cash                  used in investing activities - discontinued operations                                                             |   |                                                                        |   | (1,405,980)                                                                       |
| Net                  cash provided by (used in) investing activities                                                                     |   | (103,874,982)                                                               |   | 586,593                                                                           |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| **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                                                                   |   |                                                                              |
| Repayment                  of borrowings                                                                                                 |   |                                                                        |   | (37,929)                                                                          |
| Cash                  used in financing activities - discontinued operations                                                             |   |                                                                        |   | (498,272)                                                                         |
| Net                  cash provided by financing activities                                                                               |   | 105,077,131                                                                 |   | 73,408,943                                                                        |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| Effect                  of exchange rate changes on cash                                                                                 |   | (3,283)                                                                     |   | (2,326,009)                                                                       |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| INCREASE                  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                        |   | (24,259,870)                                                                |   | 59,309,820                                                                        |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| CASH                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                          |   | 136,621,578                                                                 |   | 37,794,416                                                                        |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| CASH                  AND CASH EQUIVALENTS, END OF PERIOD                                                                                |   | $                  112,361,708                                              |   | $                  97,104,236                                                     |
|                                                                                                                                     |   |                                                                        |   |                                                                              |
| **SUPPLEMENTAL                  CASH FLOW INFORMATION:**                                                                                 |   |                                                                        |   |                                                                              |
| Cash                  paid for interest, net of amounts capitalized                                                                      |   |                                                                        |   | $                  209,744                                                        |
| Cash                  paid for income taxes, net of refunds                                                                              |   | $                  2,865,896                                                |   | $                  2,053,000                                                      |
| **Non-cash                  investing and financing activities:**                                                                        |   |                                                                        |   |                                                                              |
| Change                  in capitalized costs included in other liabilities                                                               |   | $                  5,608,295                                                |   |                                                                              |
| Withholding                  taxes recorded in additional paid in capital related to stock appreciation                  rights exercise |   | $ 5,398,767                                                            |   |                                                                              |
|                                                                                                                                     |   |                                                                        |   |                                                                              |

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

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**PICO      HOLDINGS, INC. AND SUBSIDIARIES**

**NOTESTO      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**1.**
**Basis      of Presentation**

*Stock-Based      Compensation:*

*Stock-Based      Plans Outstanding:*

*Stock      Settled Stock Appreciation Rights:*

*PICO      Holdings, Inc. 2005 Long Term Incentive Plan (the "2005 Plan"*

*Deferred      Compensation:*

*Accounting      for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi      Trust and Invested*

*Notes      and other receivables*:

*Accounting      for Income Taxes:*

*Accounting      for Uncertainty in Income Taxes*

*Reclassifications:*

|                                | Three                  Months Ended June 30, 2006 |   | Six                  Months Ended June 30, 2006 |
|-------------------------------------|---------------------------------------------------|--------|-------------------------------------------------|
| Revenues                            | $                  883,385                        |   | $                  1,882,019                    |
| Expenses                            | $                  3,329,639                      |   | $                  6,900,607                    |
| Income                  tax benefit | $                  908,887                        |   | $                  1,774,887                    |

----

*Recently      Issued Accounting Pronouncements*

**SFAS      155**
*Accounting      for Certain Hybrid Financial Instruments - an amendment of FASB Statements      No.      133 and 140*

**SFAS      157**
*Fair      Value Measurements*

**SFAS      159**
*The      Fair Value Option for Financial Assets and Financial Liabilities—Including an      amendment of FASB Statement No. 115*
*.*

**         2.**
**Net      Income Per Share**

**3.      Comprehensive Income**

|                                                              |  Three                  Months Ended June 30,                  2007 |   |   Three                  Months Ended June 30,                  2006 |   |  Six                  Months Ended June 30,                  2007 |   |   Six                  Months Ended June 30,                  2006 |
|-------------------------------------------------------------------|--------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|
| Net                  income (loss)                                | $                  (3,713,196)                                           |   | $                  382,183                                                     |   | $                  (3,192,252)                                         |   | $                  7,600,384                                                 |
| Net                  change in unrealized appreciation            |                                                                     |   |                                                                           |   |                                                                   |   |                                                                         |
| (depreciation)                  on available for sale investments | 12,168,869                                                               |   | (1,139,841)                                                                    |   | 19,973,245                                                             |   | (6,747,101)                                                                  |
| Net                  change in foreign currency translation       | 599,035                                                                  |   | 243,164                                                                        |   | 1,057,253                                                              |   | (38,314)                                                                     |
| Total                  comprehensive income (loss)                | $                  9,054,708                                             |   | $                  (514,494)                                                   |   | $                  17,838,246                                          |   | $                  814,969                                                   |

|                                                                       | June                  30, 2007 |   | December                  31, 2006 |
|----------------------------------------------------------------------------|--------------------------------|--------|------------------------------------|
| Unrealized                  appreciation on available for sale investments | $                  86,166,673  |   | $                  66,193,428      |
| Foreign                  currency translation                              | (4,185,496)                    |   | (5,242,749)                        |
| Accumulated                  other comprehensive income                    | $                  81,981,177  |   | $                  60,950,679      |

**Marketable      equity securities: **

**Corporate      Bonds and US Treasury Obligations**

**4.      Commitments and Contingencies**

**   Fish      Springs      Ranch:**

| ·   | 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 LIBOR                from                January 8, 2009, if the payment is made after that                date). |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Exegy        Litigation:**

----

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

**Segment      assets:**

|                                                         | At                  June 30, 2007 |   | At                  December 31, 2006 |   | Increase                       |
|--------------------------------------------------------------|-----------------------------------|--------|---------------------------------------|--------|--------------------------------|
| **Total                  Assets:**                           |                              |   |                                  |   |                           |
| Water                  Resource and Water Storage Operations | $                  226,204,042    |   | $                  146,115,727        |   | $                  80,088,315  |
| Real                  Estate Operations                      | 80,539,150                        |   | 73,266,068                            |   | 7,273,082                      |
| Business                  Acquisitions and Financing         | 145,524,972                       |   | 127,304,476                           |   | 18,220,496                     |
| Insurance                  Operations in Run Off             | 226,168,835                       |   | 202,356,668                           |   | 23,812,167                     |
|                                                         | $                  678,436,999    |   | $                  549,042,939        |   | $                  129,394,060 |

**Segment      Revenues:**

|                                                             | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|------------------------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                             | **2007**                                       | **2006**                                     | **2007** | **2006** |
| Water                Resource and Water Storage Operations       | $1,492,627                                     | $                673,935                     | $2,466,991 | $                982,284 |
| Real                Estate Operations                            | 2,960,805                                      | 4,626,254                                    | 6,467,991 | 6,391,587 |
| Business                Acquisitions and Financing               | 2,647,646                                      | 3,188,181                                    | 3,824,052 | 12,160,869 |
| Insurance                Operations in Run Off                   | 1,213,198                                      | 1,059,652                                    | 3,268,643 | 8,259,920 |
| Total                Revenues                                    | $8,314,276                                     | $9,548,021                                   | $16,027,677 | $27,794,660 |
|                                                             |                                           |                                         |   |   |
| Income                (Loss) Before Taxes and Minority Interest: |                                           |                                         |   |   |
| Water                Resource and Water Storage Operations       | $(7,209,479)                                   | $(782,481)                                   | $(7,590,530) | $(1,961,377) |
| Real                Estate Operations                            | 1,638,571                                      | 2,723,539                                    | 3,838,589 | 3,650,393 |
| Business                Acquisitions and Financing               | (980,614)                                      | 879,281                                      | (3,055,579) | 7,627,147 |
| Insurance                Operations in Run Off                   | 862,380                                        | 748,449                                      | 2,563,230 | 7,549,003 |
| Income                (Loss) Before Taxes and Minority Interest  | $(5,689,142)                                   | $3,568,788                                   | $(4,244,290) | $16,865,166 |

**6.      Private Placement of Common Stock**

----

**Item      2: Management’s **
**Discussion****and Analysis of Financial Condition and Results of      Operations**

**The      following discussion and analysis of financial condition and results of      operations should be read in conjunction with the Unaudited Condensed      Consolidated Financial Statements and Notes thereto included elsewhere in this      report and the Consolidated Financial Statements and Notes thereto included      in      our annual report on Form 10-K.**

**This      Form 10-Q (including the “Management’s Discussion and Analysis of Financial      Condition and Results of Operations” section) contains “forward-looking      statements” regarding our business, financial condition, results of operations,      and prospects, including, without limitation, statements about our expectations,      beliefs, intentions, anticipated developments, and other information concerning      future matters. Words such as “expects,” “anticipates,” “intends,” “plans,”“believes,” “seeks,” “estimates,” and similar expressions or variations of such      words are intended to identify forward-looking statements, but are not the      exclusive means of identifying forward-looking statements in this Form 10-Q.      **

**Although      forward-looking statements in this Form 10-Q represent the good faith judgment      of our management, such statements can only be based on facts and factors      currently known by us. Consequently, forward-looking statements are inherently      subject to risks and uncertainties, and the actual results and outcomes could      differ from those discussed in or anticipated by the forward-looking statements.      Factors that could cause or contribute to such differences in results and      outcomes include, without limitation, those discussed under the heading “Risk      Factors” and elsewhere in our 2006 Annual Report on Form 10-K. Readers are urged      not to place undue reliance on these forward-looking statements, which speak      only as of the date of this Form 10-Q. We undertake no obligation to revise      or      update any forward-looking statement in order to reflect any event or      circumstance which may arise after the date of this Form 10-Q. Readers are      urged      to carefully review and consider the various disclosures made in this Form      10-Q      and our 2006 Annual Report on Form 10-K, which attempt to advise interested      parties of the risks and factors which may affect our business, financial      condition, results of operations, and prospects.**

**INTRODUCTION**

**Our      objective is to maximize long-term shareholder value.  We manage our      operations to achieve a superior return on net assets over the long term,      as opposed to short-term earnings. **

| **·** | 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, which develops and owns water resources and water storage                operations in the southwestern United States, primarily in Nevada                and                Arizona;                                                     |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | 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 507,000 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, and was our                original business historically;                                                                                                |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **·** | Citation                Insurance Company (“Citation”), which is “running off” its historic                property & casualty insurance and workers’ compensation loss reserves.                Citation was acquired because it was complimentary to our other insurance                operations at the time; 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. We believe that                Jungfraubahn was significantly undervalued at the time we acquired                our                interest, which was primarily between 1999 and                2003. |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**RESULTS      OF OPERATIONS--THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND      2006**

**Shareholders’      Equity**

**Comprehensive      Income**

----

**Segment      Results of Operations**

|                                                                 | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|----------------------------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                                 | **2007**                                       | **2006**                                     | **2007** | **2006** |
| **Revenues:**                                                        |                                           |                                         |   |   |
| Water                Resource and Water Storage Operations           | $1,493,000                                     | $                674,000                     | $2,467,000 | $                982,000 |
| Real                Estate Operations                                | 2,961,000                                      | 4,626,000                                    | 6,467,000 | 6,392,000 |
| Business                Acquisitions and Financing                   | 2,647,000                                      | 3,188,000                                    | 3,824,000 | 12,161,000 |
| Insurance                Operations in Run Off                       | 1,213,000                                      | 1,060,000                                    | 3,270,000 | 8,260,000 |
| **Total                Revenues**                                    | $8,314,000                                     | $9,548,000                                   | $16,028,000 | $27,795,000 |
|                                                                 |                                           |                                         |   |   |
| **Income                (Loss) Before Taxes and Minority Interest:** |                                           |                                         |   |   |
| Water                Resource and Water Storage Operations           | $(7,209,000)                                   | $(782,000)                                   | $(7,591,000) | $(1,961,000) |
| Real                Estate Operations                                | 1,639,000                                      | 2,724,000                                    | 3,839,000 | 3,650,000 |
| Business                Acquisitions and Financing                   | (                981,000)                      | 879,000                                      | (3,055,000) | 7,627,000 |
| Insurance                Operations in Run Off                       | 862,000                                        | 748,000                                      | 2,563,000 | 7,549,000 |
| **Income                (Loss) Before Taxes and Minority Interest**  | $(5,689,000)                                   | $3,569,000                                   | $(4,244,000) | $16,865,000 |

**Second      Quarter Net Income **

**First      Half Net Income **

----

**WATER      RESOURCE AND WATER STORAGE OPERATIONS**

|                                                | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|-----------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                | **2007**                                       | **2006**                                     | **2007** | **2006** |
| **Revenues:**                                       |                                           |                                         |   |   |
| Sale                of Real Estate and Water Assets | $                5,000                         | $                7,000                       | $                8,000 | $                35,000 |
| Net                Investment Income                | 1,451,000                                      | 577,000                                      | 2,411,000 | 883,000 |
| Other                                               | 37,000                                         | 90,000                                       | 48,000 | 64,000 |
| Segment                Total Revenues               | $1,493,000                                     | $674,000                                     | $2,467,000 | $982,000 |
|                                                |                                           |                                         |   |   |
| **Expenses:**                                       |                                           |                                         |   |   |
| Cost                of Real Estate and Water Assets | $(                2,000)                       | $(                2,000)                     | $(                2,000) | $(                11,000) |
| Depreciation                and Amortization        | (                255,000)                      | (                323,000)                    | (                517,000) | (                589,000) |
| Overhead                                            | (                503,000)                      | (                563,000)                    | (                1,039,000) | (1,051,000) |
| Project                Expenses                     | (7,942,000)                                    | (                568,000)                    | (                8,500,000) | (1,292,000) |
| Segment                Total Expenses               | $(8,702,000)                                   | $(1,456,000)                                 | $(10,058,000) | $(2,943,000) |
| **Loss                Before Tax**                  | $(7,209,000)                                   | $(782,000)                                   | $(7,591,000) | $(1,961,000) |

**Segment      Results**

*See      "Fish Springs Ranch” and “Idaho” below. *

| · | 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 second quarter and first half 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.* |

*See      “Fish Springs Ranch” below. *

* *

**Fish      Springs Ranch**

**Coyote      Springs**

**Western      Nevada**

**Idaho**

----

**REAL      ESTATE OPERATIONS**

|                                                   | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|--------------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                   | **2007**                                       | **2006**                                     | **2007** | **2006** |
| **Revenues:**                                          |                                           |                                         |   |   |
| Sale                of former Railroad Land       | $2,112,000                                     | $3,826,000                                   | $4,419,000 | $5,054,000 |
| Net                Investment Income                   | 680,000                                        | 391,000                                      | 1,537,000 | 770,000 |
| Other                                                  | 169,000                                        | 409,000                                      | 511,000 | 568,000 |
| Segment                Total Revenues                  | $2,961,000                                     | $4,626,000                                   | $6,467,000 | $6,392,000 |
|                                                   |                                           |                                         |   |   |
| **Expenses:**                                          |                                           |                                         |   |   |
| Cost                of former Railroad Land Sold  | $(                703,000)                     | $(1,299,000)                                 | $(1,469,000) | $(1,671,000) |
| Operating                Expenses                      | (                619,000)                      | (                603,000)                    | (1,159,000) | (1,071,000) |
| Segment                Total Expenses                  | $(1,322,000)                                   | $(1,902,000)                                 | $(2,628,000) | $(2,742,000) |
| **Income                Before Tax**                   | $1,639,000                                     | $2,724,000                                   | $3,839,000 | $3,650,000 |

----

**BUSINESS      ACQUISITIONS AND FINANCING**

|                                              | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|---------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                              | **2007**                                       | **2006**                                     | **2007** | **2006** |
| **Revenues:**                                     |                                           |                                         |   |   |
| Realized                Gains on Sale of Holdings | $                6,000                         | $                541,000                     | $                5,000 | $                8,698,000 |
| Net                Investment Income              | 2,609,000                                      | 2,551,000                                    | 3,786,000 | 3,266,000 |
| Other                                             | 32,000                                         | 96,000                                       | 33,000 | 197,000 |
| Segment                Total Revenues             | $2,647,000                                     | $3,188,000                                   | $3,824,000 | $12,161,000 |
|                                              |                                           |                                         |   |   |
| **Segment                Total Expenses**         | $(3,628,000)                                   | $(2,309,000)                                 | $(6,879,000) | $(4,534,000) |
| **Income                (Loss) Before Tax**       | $(981,000)                                     | $879,000                                     | $(3,055,000) | $7,627,000 |

**INSURANCE      OPERATIONS IN RUN OFF**

|                                                | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|-----------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                | **2007**                                       | **2006**                                     | **2007** | **2006** |
| **Revenues:**                                       |                                           |                                         |   |   |
| Realized                Gains on Sale of Holdings   | $204,000                                       | $                147,000                     | $1,432,000 | $6,676,000 |
| Net                Investment Income                | 990,000                                        | 913,000                                      | 1,807,000 | 1,584,000 |
| Other                                               | 19,000                                         |                                         | 31,000 |   |
| Segment                Total Revenues               | $1,213,000                                     | $1,060,000                                   | $3,270,000 | $8,260,000 |
|                                                |                                           |                                         |   |   |
| **Segment                Total Expenses**           | $(351,000)                                     | $(312,000)                                   | $(707,000) | $(711,000) |
|                                                |                                           |                                         |   |   |
| **Income                Before Taxes:**             |                                           |                                         |   |   |
| Physicians                Insurance Company of Ohio | $742,000                                       | $652,000                                     | $1,991,000 | $5,945,000 |
| Citation                Insurance Company           | 120,000                                        | 96,000                                       | 572,000 | 1,604,000 |
| Income                Before Tax                    | $862,000                                       | $748,000                                     | $2,563,000 | $7,549,000 |

**Physicians      Insurance Company of Ohio**

| **PHYSICIANS                INSURANCE COMPANY OF OHIO -- LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES****(In                Millions)** |
|--------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                 | **June                30, 2007**  | **December                31, 2006** |
|                                                                                                                                 |   |   |
| Direct                Reserves                                                                                                       | $9.7 | $10.4 |
| Ceded                Reserves                                                                                                        | (                0.8) | (1.0) |
| **Net                Medical Professional Liability Insurance Reserves**                                                             | $8.9 | $9.4 |

**Citation      Insurance Company**

| **CITATION                INSURANCE COMPANY -- LOSS AND LOSS ADJUSTMENT EXPENSE                RESERVES****(In                Millions)** |
|-------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                      | **June                30, 2007**  | **December                31, 2006** |
| **Property                & Casualty Insurance**                                                                                      |   |   |
| Direct                Reserves                                                                                                            | $6.3 | $6.6 |
| Ceded                Reserves                                                                                                             | (1.6) | (1.5) |
| Net                Property & Casualty Insurance Reserves                                                                             | $4.7 | $5.1 |
|                                                                                                                                      |   |   |
| **Workers’                Compensation**                                                                                            |   |   |
| Direct                Reserves                                                                                                            | $22.4 | $24.1 |
| Ceded                Reserves                                                                                                             | (13.6) | (14.5) |
| Net                Workers’ Compensation Insurance Reserves                                                                         | $8.8 | $9.6 |
|                                                                                                                                      |   |   |
| **Total                Reserves**                                                                                                         | $13.5 | $14.7 |

----

**DISCONTINUED      OPERATIONS - HYPERFEED TECHNOLOGIES**

|                                                                          | **Three                Months Ended June 30,** | **Six                Months Ended June 30,** |
|-------------------------------------------------------------------------------|------------------------------------------------|----------------------------------------------|
|                                                                          | **2007**                                       | **2006**                                     | **2007** | **2006** |
| Loss                Before Income Taxes                                       |                                           | $(2,446,000)                                 |   | $(5,018,000) |
| Income                Tax Benefit                                             |                                           | 909,000                                      |   | 1,774,000 |
| Gain                On Sale of HyperFeed’s Discontinued Operations, net |                                           |                                         |   | 165,000 |
| **Loss                After Tax**                                             |                                           | $(1,537,000)                                 |   | $(3,079,000) |

**LIQUIDITY      AND CAPITAL RESOURCES—SIX MONTHS ENDED JUNE 30, 2007 AND      2006**

**Cash      Flow**

| **·** | 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 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.   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Share      Repurchase Program**

**Item      3****:      Quantitative and Qualitative Disclosure about Market Risk**

**Item      4: Controls and Procedures**

----

**Part      II: Other Information**

**Item      1: Legal Proceedings**

*  *

**Exegy      Litigation:**

**Fish      Springs Ranch, LLC:**

*See      the Water Resources and Water Storage Operations segment discussion in Part      I,      Item 2, *
***“***
*Management’s      Discussion and Analysis of Financial Condition and Results of      Operations”.*

**Item      1A: Risk Factors**

**Item      2: Unregistered Sales of Equity Securities and Use of      Proceeds**

**Item      3: Defaults Upon Senior Securities**

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

**Item      5: Other Information**

----

**Item      6: Exhibits **

| ExhibitNumber |   | Description                                                                                                                                                                                                     |
|---------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3(i)          |   | Amended                and Restated Articles of Incorporation of PICO.(1)                                                                                                                                       |
| 3(ii)         |   | Amended                and Restated By-laws of PICO. (2)                                                                                                                                                        |
|  4.1     |   | Form                of Form of Securities Purchase Agreement dated February 28, 2007                between                PICO Holdings, Inc. and the Purchasers. (3)                                          |
| 10.15         |   | Form                of Employment Agreement for John R. Hart. (4)                                                                                                                                               |
| 10.17         |   | Form                of Pyramid Lake Paiute Tribe Fish Springs Ranch LLC Settlement Agreement.                (5)                                                                                                |
| 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 of same number filed with Form 8-K dated                December                4, 1996.           |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | Filed                as Appendix to the prospectus in Part I of Registration Statement                on Form                S-4 (File No. 333-06671). |
|   | (3) | Incorporated                by reference to Exhibit 10.12 to the Form 8-K filed on March 2,                2007.                                       |
|   | (4) | Incorporated                by reference to Exhibit 10.15 to the Form 8-K filed on May 9,                2007.                                         |
|   | (5) | Incorporated                by reference to Exhibit 10.17 to the Form 8-K filed on June 5,                2007.                                        |

**PICO      HOLDINGS, INC. AND SUBSIDIARIES**

**SIGNATURE**

**PICO      HOLDINGS, INC.**

*Principal      Financial and Accounting Officer and Authorized Signatory)*