10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number 000-51530

NORTH POINTE HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)

Michigan	38-3615047
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
28819 Franklin Road	48034
Southfield, Michigan	(Zip Code)
(Address of principal executive offices)

(Registrant’s telephone number, including area code)
(248) 358-1171

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, No par value	Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes þ     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the common shares held by non-affiliates, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2007, was $46.9 million. (For this computation, the registrant has excluded the market value of all shares of its Common Stock beneficially owned by directors of the registrant and certain other shareholders; such exclusion shall not be deemed to constitute an admission that any such person is an “affiliate” of the registrant.)

As of February 28, 2008, there were 8,919,329 shares of Common Stock outstanding.

FORM 10-K

TABLE OF CONTENTS

			Page
PART I:
	Item 1.	Business		3
	Item 1A.	Risk Factors		23
	Item 1B.	Unresolved Staff Comments		33
	Item 2.	Properties		33
	Item 3.	Legal Proceedings		34
	Item 4.	Submission of Matters to a Vote of Security Holders		34
PART II:
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		34
	Item 6.	Selected Financial Data		36
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		38
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		56
	Item 8.	Financial Statements and Supplementary Data		57
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		59
	Item 9A.	Controls and Procedures		59
	Item 9B.	Other Information		59
PART III:
	Item 10.	Directors, Executive Officers and Corporate Governance		60
	Item 11.	Executive Compensation		63
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		78
	Item 13.	Certain Relationships and Related Transactions, and Director Independence		79
	Item 14.	Principal Accounting Fees and Services		80
PART IV:
	Item 15.	Exhibits, Financial Statement Schedules		81
	Item 15(a)(1).	Financial Statements and Reports of Independent Registered Public Accounting Firm		81
	Item 15(a)(2).	Financial Statement Schedules		121
	Item 15(a)(3).	Exhibit Index		132

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PART I

Item 1.   BUSINESS.

The following discussion of our business contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events. We caution that although forward-looking statements reflect our good faith beliefs and best judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, including those risks, uncertainties, and factors detailed from time to time in reports filed with the Securities and Exchange Commission, or SEC, and in particular those set forth under the heading “Risk Factors” in this Annual Report on Form 10-K.

Unless otherwise indicated or the context otherwise requires, in this Annual Report on Form 10-K: references to “North Pointe,” “we,” “us” and “our” are to North Pointe Holdings Corporation and its consolidated subsidiaries; references to “our insurance companies” or “our insurance company subsidiaries” are to North Pointe Insurance Company (referred to herein as North Pointe Insurance), North Pointe Casualty Insurance Company (referred to herein as North Pointe Casualty), Home Pointe Insurance Company (referred to herein as Home Pointe Insurance), Midfield Insurance Company (referred to herein as Midfield), and Capital City Insurance Company (referred to herein as Capital City), taken together; references to the “Predecessor Companies” are to the companies we purchased on June 26, 2002 from Queensway Holdings, Inc., namely North Pointe Financial Services, Inc.(referred to herein as North Pointe Financial) and its subsidiaries which include North Pointe Insurance, Universal Fire & Casualty Insurance Company, and Alliance Surety Holdings, Inc. As of September 2006, Alliance Surety Holdings, Inc. was merged into North Pointe Holdings Corporation.

On July 2, 2007, North Pointe Financial completed the purchase of all the outstanding shares of capital stock of Capital City Holding Company, Inc., as a result Capital City became a wholly-owned subsidiary of North Pointe Financial. This transaction was accounted for by the purchase method of accounting using Capital City’s historical financial information and applying fair value estimates to the acquired assets, liabilities and commitments of Capital City as of July 2, 2007. The operating results of Capital City have been included in the Company’s consolidated financial statements since their date of acquisition. The data herein for the prior year periods does not include Capital City.

During the fourth quarter of 2007, the Company committed to a plan to sell Home Pointe Insurance. In accordance with accounting standards, the financial results of Home Pointe are reported as discontinued operations in the Company’s consolidated balance sheet for the current year and as discontinued operations in the Company’s consolidated statement of income for all periods presented.

On January 3, 2008, the Company announced that we signed a definitive merger agreement to be acquired by QBE Holdings, Inc. (QBE), a subsidiary of QBE Insurance Group LTD, in a cash transaction valued at approximately $146 million. This transaction, which is subject to satisfaction of certain closing conditions, is expected to close during the first half of 2008.

The Company

North Pointe Holdings Corporation is a property and casualty insurance holding company. Through our insurance company subsidiaries, we market both specialty commercial and personal insurance products. For the year ended December 31, 2007, 93.9% and 6.1% of our net premiums earned from continuing operations were attributable to commercial lines and personal lines, respectively. Within our commercial lines segment, we primarily target policyholders that we believe are underserved due to either the size of the market or unique operating characteristics of potential policyholders. Examples of the classes of commercial policyholders that we serve are owner-operated small and mid-sized restaurants, bars, taverns, small grocery and convenience stores, bowling centers, automobile repair facilities, artisan contractors and roller skating centers. Our personal lines segment is currently focused on specialty homeowners insurance.

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Industry Information

Our insurance company subsidiaries write both property and liability insurance. Property insurance covers a policyholder whose property is damaged or destroyed by a covered risk. The loss is the reduction in the value of the property being insured after the covered risk has occurred. Liability, also known as casualty, insurance covers a policyholder’s liability resulting from a covered risk in the form of an act or omission that causes bodily injury or property damage to a third party. In liability insurance, the loss is the amount of the claim or payment made on the policyholder’s behalf. Our insurance company subsidiaries write property and liability insurance for businesses and professional organizations (commercial lines) and for individuals (personal lines).

We write insurance with both short-tail and longer-tail liability. Short-tail liability is liability for losses which become known to the policyholder and are reported to the insurance company within a short period of time, generally within the policy period or within one or two years of expiration. Conversely, longer-tail liability is liability for losses that may take many years before they become known to the policyholder and are reported as claims. We consider our property, homeowners and automobile damage coverages to be short-tail, because we generally know by policy expiration or shortly thereafter if there is a loss. We consider our liquor liability, general liability, and workers compensation coverages to be longer-tail business because losses under these coverages may not be reported to us for several years.

Most property and casualty insurance policies are purchased from insurance companies that are licensed to write insurance in the state in which the policy was sold. These companies are admitted to do business in the state by its insurance department, and therefore are generally known as admitted companies. Admitted companies’ insurance rates and forms are regulated by state insurance departments. In contrast, non-admitted companies, also known as excess or surplus lines companies, are less regulated in the particular state. They provide coverage for risks that either do not fit the underwriting criteria of admitted carriers or are of such a class of risk that the admitted carriers in that state generally avoid them altogether, often due to the difficulty of insuring these risks in an environment where rates and forms are regulated. To help ensure the availability of those lines of insurance that the admitted companies will not provide, the individual insurance departments of various states will permit surplus lines companies to offer these lines, foregoing the standard regulation of solvency, rate and form. As of December 31, 2007, one or more of our insurance company subsidiaries were licensed as admitted companies in 50 states plus the District of Columbia and authorized as surplus lines companies in 37 states.

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Our Product Lines

The following table shows our net premiums earned from continuing operations by product line for each of the periods indicated:

	Years Ended December 31,
	2007					2006					2005
			% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total
	(Dollars in thousands)
Commercial Lines:
Liquor liability	$	10,967		11.6	%	$	10,477		12.9	%	$	10,913		12.9	%
General liability		34,108		36.2	%		16,907		15.1	%		12,807		15.1	%
Total liability		45,075		47.8	%		27,384		28.0	%		23,720		28.0	%
Property		12,467		13.2	%		7,320		7.4	%		6,299		7.4	%
Commercial multi-peril		1,660		1.8	%		15,932		26.2	%		22,230		26.3	%
Commercial automobile		10,702		11.4	%		5,823		7.3	%		6,156		7.3	%
Workers compensation		14,018		14.9	%		—		0.0	%		—		0.0	%
Other		4,509		4.8	%		2,997		3.2	%		2,661		3.1	%
Total commercial lines		88,431		93.9	%		59,456		72.1	%		61,066		72.1	%
Personal Lines:
Automobile		—		0.0	%		—		1.7	%		1,459		1.7	%
Homeowners		4,905		5.2	%		7,195		26.2	%		22,184		26.2	%
Other		843		0.9	%		—		0.0	%		—		0.0	%
Total personal lines		5,748		6.1	%		7,195		27.9	%		23,643		27.9	%
Total net premiums earned from continuing operations	$	94,179		100.0	%	$	66,651		100.0	%	$	84,709		100.0	%

Commercial Insurance Products

Our specialty commercial insurance lines consist primarily of coverages for liquor liability, property, general liability, commercial multi-peril and commercial automobiles. Our insurance policies are sold to targeted small and mid-sized businesses on a single or multiple-coverage basis. During the years ended December 31, 2007, 2006, and 2005 our commercial lines segment accounted for 93.9%, and 72.1%, and 71.9%, respectively, of our net premiums earned from continuing operations. This increase in the commercial insurance lines is primarily due to the Capital City acquisition.

Liquor Liability.  Liquor liability laws require a business that sells alcoholic beverages to be responsible for bodily injury or property damage caused by its customers to a third party. Insurance coverage for this exposure is referred to as liquor liability insurance. Our liquor liability insurance policies provide limits generally ranging from $50,000 to $1.0 million per occurrence. Liquor liability insurance represented approximately 11.6% of our net premiums earned from continuing operations for the year ended December 31, 2007.

General Liability.  General liability covers a policyholder’s liability resulting from a covered risk in the form of an act or omission of the policyholder that causes bodily injury or property damage to a third party. Our general liability policies usually provide for defense and related expenses in addition to per occurrence and aggregate policy limits. Our general liability insurance policies have varying limits, with the majority of our policies having limits of $1.0 million or less. With the acquisition of Capital City Insurance in 2007, forestry liability in the Southeastern United States was added to our general liability program. General liability insurance represented approximately 36.2% of our net premiums earned from continuing operations for the year ended December 31, 2007, up significantly from prior years due to the Capital City acquisition.

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Property.  Property insurance covers a policyholder whose property is damaged or destroyed by a covered risk. Our property insurance policies have varying limits, with the majority of such policies having limits of $1.0 million or less. Property insurance represented approximately 13.2% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Commercial Multi-Peril.  Commercial multi-peril, also known as CMP, is composed of two or more coverages including property, commercial automobile, boiler and machinery and general liability, and is tailored to the policyholder’s needs. Business owners policies, also known as BOP, are included within our CMP line and combine property, liability and business interruption coverage to cover expenses of a small business resulting from damage to the business’ property or the acts or omissions of the business that cause damage to a third party. Optional specialty coverages can also be added to these packages, including liquor liability, business crime, accounts receivable, theft of money and securities, computer equipment and outdoor sign coverages. Our typical policy for CMP or BOP has a $1.0 million limit, but we have the ability to write umbrella coverage over our basic limits through a reinsurer. Commercial multi-peril insurance represented approximately 1.8% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Commercial Automobile.  Commercial automobile policies provide physical damage and other liability coverage for activities involving company-owned vehicles. Our commercial automobile insurance policies generally provide combined bodily injury and property damage limits of $1.0 million.

We currently provide commercial automobile insurance policies primarily in the Midwest and Southeast to policyholders who purchase or currently have other commercial policies with us and who have a need to insure company-owned vehicles. As part of the Capital City acquisition in 2007, we have begun providing a specialty line for commercial auto in the forestry industry. Commercial automobile insurance represented approximately 11.4% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Workers compensation.  Workers compensation covers an insured from claims arising from injury or disease related to employment and occurs while employee is engaged in work-related activities. In the Southeastern United States, our Capital City Insurance subsidiary writes a specialty line of workers compensation for the forestry industry (this represents the majority of our workers compensation policies). In Michigan, our target market is accounts under $50,000, non-catastrophic, and focusing on the service, retail, and manufacturing accounts. Workers compensation insurance represented approximately 14.9% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Other Program Business.  We occasionally offer other small specialty commercial products, generally in instances where one of our independent agents has expertise in the particular coverages. For example, we offer property and liability coverages to small Michigan assisted-living facilities, realtors errors and omissions, lawyers professional liability, and fidelity. Our small specialty commercial programs accounted for 4.8% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Personal Insurance Products

We also offer selected specialty personal insurance products. During the years ended December 31, 2007, 2006 and 2005, our personal lines segment accounted for approximately 6.1%, 27.9% and 28.1%, respectively, of our net premiums earned from continuing operations.

Automobile.  Non-standard personal automobile insurance provides coverage to drivers who find it difficult to obtain insurance from standard insurance companies due to a lack of prior insurance, failure to maintain continuous coverage, age, prior accidents, driving violations, type of vehicle or limited financial resources. In general, customers in the non-standard market pay higher premiums for comparable coverage than customers who qualify for the standard market. Typically, our non-standard personal automobile insurance policies were issued for six months and for the minimum limits of coverage mandated by state law. On October 15, 2004, we sold the renewal rights to this book of business. We continue, however, to be responsible for paying claims and performing other administrative services with respect to the run-off of non-standard automobile policies that were either expired or still in-force at the time of the sale.

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Homeowners and Dwelling/Fire.  We currently offer non-standard homeowners insurance and dwelling/fire insurance products to individuals in Indiana, Illinois, Iowa South Carolina and Tennessee which comprises our Midwest homeowners insurance line, and Arizona, Hawaii , and Nevada which comprises our Southwest homeowners insurance line. Non-standard homeowners insurance and dwelling/fire insurance provides coverage to homeowners who find it difficult to obtain coverage from standard carriers due to various factors including the age of the home, its replacement value and/or location. Our Midwest homeowners line typically offers coverage with property limits ranging from $100,000 to $250,000 and personal liability limits ranging from $50,000 to $300,000. The dwelling/fire insurance line provides individual owners with property coverage and basic perils coverage only, with no liability coverage attached. Homeowners and dwelling fire insurance represented approximately 5.2% of our net premiums earned from continuing operations for the year ended December 31, 2007.

Other Program Business.  In June 2007, North Pointe Insurance began writing a personal pet insurance product, which covers the medical cost associated with accidental injuries, as well as, routine and illness related veterinary visits. This product is offered in partnership with Pets Best, which processes enrollments automatically on their website using an automated underwriting system based on factors including breed, age and prior medical history.

Agency Services

As part of the Capital City purchase, we acquired Davis-Garvin Agency, Inc. Through Davis-Garvin Agency, Inc., we earn commissions from the operation of the agency and wholesale brokerage operation located in the Southeastern United States. The agency writes commercial, personal lines, life and accident and health insurance with our affiliate insurance company and more than 50 unaffiliated insurance carriers. The brokerage operation writes commercial insurance with our affiliated insurance company and more than 15 unaffiliated insurance carriers. The agency and brokerage operation produced $20.1 million of premiums for our affiliated insurance company for the year ended December 31, 2007 and earned gross commissions of $4.2 million from unaffiliated carriers.

Administrative Services

North Pointe Financial, which is our wholly-owned licensed general agent, was our original general agent for the Restaurant Bar and Tavern, or RBT, business in Michigan in the period before North Pointe Insurance became licensed in 1987. It also provides management and administrative services for our insurance company subsidiaries and our premium finance subsidiary. These services include providing staff, offices and equipment, and collecting premium, for which North Pointe Financial earns fee income.

We also offer premium financing to commercial accounts through N.P. Premium Finance Company, our wholly-owned premium finance company. We generally provide premium financing for our policyholders only. This subsidiary is licensed to provide premium financing in seven states, but does most of its business in Michigan, Iowa, Ohio and Illinois. During 2007, we had an average month-end finance receivable balance of approximately $697,000, and we averaged 443 accounts serviced for each month.

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Geographic Distribution

The following table illustrates the geographic distribution, by state, of net premiums earned from continuing operations for the periods indicated:

	Years Ended December 31,
State	2007			2006			2005
Florida		38.7	%		55.9	%		60.6	%
Michigan		17.5	%		23.4	%		22.0	%
Georgia		5.6	%		0.1	%		0.1	%
South Carolina		5.4	%		0.0	%		0.0	%
North Carolina		5.0	%		0.0	%		0.0	%
Indiana		4.0	%		5.2	%		5.2	%
Illinois		2.8	%		3.9	%		3.8	%
Ohio		2.7	%		3.3	%		2.4	%
Arkansas		2.3	%		0.1	%		0.0	%
Tennessee		1.8	%		0.3	%		0.0	%
All others		14.2	%		7.8	%		5.9	%
		100.0	%		100.0	%		100.0	%

Marketing and Distribution

We market and sell our products through our affiliated agency and a network of over 1,930 independent agents that distribute our policies through their approximately 2,380 sales offices. Our marketing and distribution programs are designed to reach our targeted policyholders efficiently and to provide superior customer service to our network of independent agents. Because we treat our agents as our customers, we are focused on delivering outstanding service by providing short response times to requests for quotes, working with agents to develop policies to meet the specific needs of their customers and developing agent-friendly technology, such as the internet-based quote system for our specialty homeowners insurance product. We distribute most of our insurance products through a geographically dispersed network of agents that serve local communities. We believe that geographic penetration is important to reach potential customers because they tend to purchase insurance policies from agents in their general vicinity. For example, agents that serve multiple policyholders in a local community are the primary distribution channel for our products focused on RBT, small business and specialty homeowners markets.

We often augment the marketing efforts of our agents by obtaining the endorsement of appropriate trade associations. For example, we market our bowling products by cultivating relationships with agents that specialize in bowling centers and obtaining the endorsement of national and state bowling associations.

We are not dependent upon any single agent or group of agents. In 2007, our single largest agent accounted for 4.4% of our total gross premiums written and our top independent 5 agents accounted for a total of 15.8% of our gross premiums written. No other agent accounted for more than 2.0% of gross premiums written.

Underwriting and Pricing

Commercial Lines.  In writing commercial lines policies, we frequently employ customized limiting endorsements, rating surcharges and customized limits to align our product offerings to the risk profile of the class and the specific policyholder being underwritten. Furthermore, we periodically monitor our markets so that we are able to quickly implement changes in pricing, underwriting guidelines and product offerings as necessary to remain competitive. We generally do not pursue commercial product lines where competition is based primarily on pricing. We augment our own internally-developed pricing models with benchmark rates and policy terms set forth by the Insurance Services Office, or ISO. The ISO system is a widely recognized industry resource for common and centralized rates and forms. It provides advisory ratings, statistical and actuarial services, sample policy provisions and other services to its members.

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Personal Lines.  We employ internal product managers to review our position relative to our competition, create better segmentation of pricing and originate premium rate changes as appropriate. Consistent with industry practice, we grant our personal lines agents binding authority within our specific guidelines. Once a completed application and premium payment are submitted to us, the application is bound but still reviewed for final approval. If the agent has underwritten and submitted the account according to our guidelines, we process the application as complete. If our guidelines have not been followed, the application may be cancelled or updated and re-submitted for further underwriting review. If the agent does not submit the minimum down payment, we allow for a specific notice and cure period, then process or cancel as appropriate.

Claims Handling

We believe that effective claims management is critical to our success, allowing us to cost-effectively pay valid claims, while vigorously defending those claims that lack merit. To this end, we utilize a proactive claims handling philosophy and seek to internally manage or supervise all of our claims from inception until settlement. By handling our claims internally, we believe we can quickly assess claims, improve communication with our policyholders and claimants and better control our claims management costs.

In conjunction with a third-party vendor, we have developed a customized claims handling management information system with remote access capability to assist us in the claims handling process. This system has been tailored to our claims information processing needs and allows for ongoing automated claims management and reporting. With the more up-to-date information that is available through this system, our adjusters and claims managers can better track and assess claims, litigation and reinsurance developments. We can also readily capture information that is useful in establishing loss reserves and determining premium rates. As a result, we believe our claims management approach has helped us to generate loss ratios that are better than industry averages.

Unpaid Losses and Loss Adjustment Expenses

We are liable for losses covered under our insurance policies and we establish reserves for unpaid losses and unpaid loss adjustment expenses for all of our lines of business. Our reserves are intended to cover our best estimate of the ultimate cost of settling all losses incurred and unpaid, including those losses that are incurred but have not yet been reported to us.

We establish reserves for reported claims when we first receive notice of a claim. Our reserves for such reported claims are established on a case-by-case basis by evaluating several factors, including the type of risk involved, knowledge of the circumstances surrounding such claim, severity of injury or damage, the potential ultimate exposure, experience with the insured and the policy provisions relating to the type of claim.

We also establish reserves for our estimated loss adjustment expenses, which are our costs of adjusting the claimed loss whether or not paid. In developing our reserves for loss adjustment expenses, we primarily evaluate our historical ratios of paid loss adjustment expenses to paid losses, adjusted to reflect changes in our mix of business, claims processing procedures or philosophy regarding the defense of lawsuits.

We know that at any given time there are claims on our policies that have not yet been reported to us. As a result, we establish reserves that reflect our best estimate of the liabilities we will have for claims that have been incurred but not reported, or IBNR reserves. In setting our IBNR reserves, we consider analyses of our loss data and industry loss data, in addition to current frequency and severity trends as compared to historical trends.

We review our reserves by product line, coverage and state on an annual, semiannual, or quarterly basis, depending on the size of the product line or emerging issues related to the coverage. Our reserves are estimates of what we expect to pay on claims based on facts and circumstances known at the time we set the reserves. There is a certain amount of random variation in loss development patterns and this results in some uncertainty regarding projected ultimate losses. As a result, our ultimate liability for losses and loss adjustment expenses may exceed or may be less than our reserve estimates. In setting our loss reserve estimates, we review statistical data covering several years, analyze loss patterns by line of business and consider several factors, including trends in claim frequency and severity, changes in operations, emerging economic and social trends, inflation and changes in the regulatory and litigation environment. We also regularly evaluate our loss reserves through an examination of our

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loss ratio and claims severity trends and, if necessary, increase or decrease the level of our reserves as experience develops or new information becomes known. In addition, during the loss settlement period of a claim, which in some of our product lines can last several years, we may obtain additional information about a claim, which may cause us to adjust the reserve for that claim upward or downward as appropriate.

In developing our loss and loss adjustment expense reserves, we utilize ten years of historical loss experience when available. If ten years of historical data is not available or volume is too small to make historical data a reliable predictor of future loss activity, we rely in varying degrees on available industry data. We use our historical development and industry data to establish factors to calculate our reserve estimates. Development is defined as the change between two dates in the value of the ultimate loss estimates.

We perform an actuarial analysis for each coverage or product line primarily utilizing various components of the incurred loss development method, the Bornhuetter-Ferguson incurred loss method or the expected loss method, depending upon the particular coverage or product line, to generate a single point estimate for each coverage or product line. We then aggregate those individual estimates to generate our total reserve.

At December 31, 2007, our best estimate of our ultimate liability for loss and loss adjustment expense reserves, net of reinsurance recoverables, was $121.1 million. Our estimate of loss and loss adjustment expense reserves is necessarily derived through actuarial analysis which involves substantial judgement in the course of establishing the reserves.

We generate a sensitivity analysis of our net reserves based on reasonably likely changes to the key assumptions which drive our reserves. Our most significant assumptions are the loss development factors applied to paid losses and case reserves to develop reserves for IBNR reserves by product or coverage and our expected loss ratios developed through past experience, taking into account pricing changes, inflation, and other factors. Although historical loss development provides us with an indication of future loss development, it typically varies from year to year. Thus, for each accident year within each product or coverage, we select one loss development factor derived from a range of historical factors. Our sensitivity analysis provides for possible variations from the selected loss development factors based on the year-to-year variations of historical loss development.

We calculate the high end of the range primarily by increasing loss development factors to the high end of the historical range of loss development and we calculate the low end of the range by reducing loss development factors to the low end of the historical range of loss development. These changes were performed for the most recent three to five accident years. We believe that the historical range of loss development provides a good indication of reasonably likely changes to our reserve estimate.

Such changes in key assumptions would have increased or decreased net reserves as of December 31, 2007 by $11.7 million or $6.4 million, respectively. If net reserves were $11.7 million greater as of December 31, 2007, our net income for the twelve months ended December 31, 2007 and shareholders’ equity as of December 31, 2007 would have been lower by $7.7 million. Conversely, if net reserves were $6.4 million lower as of December 31, 2007, our net income for the twelve months ended December 31, 2007 and shareholders’ equity as of December 31, 2007 would have been greater by $4.2 million. We do not believe such changes to our reserve balance would have a material impact on our liquidity.

The following table illustrates the results of the changes to the net reserve balances resulting from the sensitivity analysis by segment as of December 31, 2007 and in total as of December 31, 2006.

	Net Reserves at December 31, 2007						Total Net
	Personal		Commercial				Reserves at
	Lines		Lines				December 31,
	Segment		Segment		Total		2006
	(Dollars in thousands)
Low end of range	$	2,229	$	112,535	$	114,764	$	53,672
Carried reserves		2,299		118,824		121,123		56,434
High end of range		2,384		130,453		132,837		60,715

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Given the numerous factors in the analysis, as well as the variety of coverages analyzed, we do not believe that it would be reasonable to provide more detailed disclosure regarding the individual changes to the loss development factors and their individual effects on total reserves. Furthermore, there is no precise method for subsequently evaluating the impact of any specific factor on the adequacy of reserves, because the eventual deficiency or redundancy is affected by multiple factors.

The table below presents a breakdown of the insurance companies’ reserve (redundancies) or deficiencies by line of business. The table does not include the net reserves acquired with the purchase of Capital City on July 2, 2007 nor does it include the development of those reserves.

	2007					2006					2005
			Increase					Increase					Increase
			(Decrease) in					(Decrease) in					(Decrease) in
	Net		Estimate of			Net		Estimate of			Net		Estimate of
	Reserves at		Beginning of			Reserves at		Beginning of			Reserves at		Beginning of
	Beginning of		Year Net			Beginning of		Year Net			Beginning of		Year Net
	Year		Reserves			Year		Reserves			Year		Reserves
	(Dollars in thousands)
Lines of Business
RBT and bowling center	$	21,519	$	1,143		$	21,476	$	(6,560	)	$	23,998	$	(2,080	)
Commercial automobile		5,816		958			6,310		(203	)		3,394		(191	)
North Pointe Casualty run off		68		(17	)		127		15			557		(100	)
Florida small business		21,456		1,562			14,510		3,004			17,393		(848	)
Other		1,388		811			1,764		(209	)		2,120		(244	)
Total commercial lines		50,247		4,457			44,187		(3,953	)		47,462		(3,463	)
Personal automobile		1,570		(303	)		2,767		1,779			10,506		(1,290	)
Homeowners		3,025		(705	)		4,835		(320	)		2,049		(682	)
Total personal lines		4,595		(1,008	)		7,602		1,459			12,555		(1,972	)
Total lines	$	54,842	$	3,449		$	51,789	$	(2,494	)	$	60,017	$	(5,435	)

In 2007, loss and loss adjustment expenses included a net increase of $3.3 million ($3.4 million increase from North Pointe and $139,000 decrease from Capital City) which resulted in adverse development of reserves relating to prior periods for the Company. In 2006 and 2005, loss and loss adjustment expenses included net reductions of $2.5 million and $5.4 million, respectively, as a result of favorable developments. The overall adverse development in 2007 was primarily attributable to adverse development in the Florida commercial lines of business. This development is spread between Florida small business, RBT and bowling center and commercial automobile lines of business from all accident years. Further adverse development is not expected on this business going forward. Favorable developments in 2006 and 2005 were primarily attributable to two factors: (i) settlement of claims at amounts lower than the established reserves and (ii) reductions in IBNR estimates due to reductions in loss factors reflecting more favorable experience. Favorable settlement of claims was partially attributable to an improved tort environment, which has resulted in more favorable outcomes than expected in some of the more difficult liability claims. In addition, we historically have considered available industry data in establishing our reserves for those lines in which our own historical data was not extensive enough either in terms of the number of years of loss experience or the size of our data pool. Statistics regarding industry loss experience have typically indicated loss experience higher than our historical experience, partially due to the fact that available industry statistics generally include risks which we do not cover, such as environmental and asbestos liabilities, or the industry data is not specific enough to our particular specialty lines. In circumstances where we believe industry loss experience is less useful, we have accorded it less weight in establishing our reserves and have accorded more weight to other factors, including underwriting standards, policy provisions, policyholder demographics, legal environment and inflationary trends. There have been no significant changes in key assumptions utilized in the analyses and calculations of

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our reserves during 2007, 2006 or 2005. As our historical data for a particular line of business increases, both in terms of the number of years of loss experience and the size of our data pool, we will increasingly accord greater weight to our own loss experience rather than industry loss experience in establishing our reserves.

The adverse development in 2007 for the RBT and bowling center, Florida small business, and commercial automobile lines of $1.1 million, $1.6 million and $958,000, respectively, were attributable to multiple accident years. Development in these lines is primarily attributable to commercial business in Florida, where the actual loss development was higher than our original estimated loss development factors.

The $6.6 million of favorable development in 2006 for the RBT and bowling center lines was primarily attributable to the 2002, 2003, 2004 and 2005 accident years with $616,000, $854,000, $2.4 million and $2.8 million in redundancies, respectively. We also experienced other, smaller redundancies offset by small deficiencies in accident years 2001 and prior. The favorable reserve adjustments were primarily attributable to lower actual loss development as compared to our original estimated loss development factors.

The $3.0 million of unfavorable development in 2006 for the Florida small business line was primarily attributable to the 2001, 2002, 2003, 2004 and 2005 accident years with $282,000, $261,000, $262,000, $1.6 million and $754,000 in deficiencies, respectively. The unfavorable reserve adjustments were primarily attributable to higher actual loss development as compared to our original estimated loss development factors.

The $1.8 million of unfavorable development in 2006 for the personal automobile line was primarily attributable to the 2002, 2003 and 2004 accident years with $110,000, $416,000 and $1.1 million in deficiencies, respectively. At December 31, 2005, we had $1.3 million of favorable development in the personal automobile line primarily attributable to the 2001, 2002 and 2003 accident years with $457,000, $308,000 and $663,000 in redundancies, respectively, and lesser redundancies attributable to accident years 2000 and prior. These redundancies were partially offset by a deficiency in the 2004 accident year of $479,000 relating to the personal injury protection coverage. We ceased writing personal automobile policies in October 2004.

The $2.1 million of favorable development in 2005 for the RBT and bowling center lines was primarily attributable to the 2002, 2003 and 2004 accident years with $353,000, $1.4 million and $678,000 in redundancies, respectively. We also experienced other, smaller redundancies relating to accident years 1998 and prior aggregating $300,000. These redundancies were partially offset by $671,000 of deficiencies from the 1999 through 2001 accident years. This development was primarily in liability lines which are more dependent on estimations when establishing reserves and require more years to fully develop than property lines. The favorable reserve adjustments were primarily attributable to lower actual loss development as compared to our originally estimated loss development factors.

The $848,000 of favorable development in 2005 for the Florida small business line was primarily attributable to the 2001, 2003 and 2004 accident years with $207,000, $307,000 and $533,000 in redundancies, respectively, and lesser redundancies attributable to accident years 1998 and 1999. These redundancies were partially offset by a deficiency in the 2000 accident year of $374,000.

The following table presents the development of reserves for unpaid losses and loss adjustment expenses from 1997 through 2007 for our insurance company subsidiaries, net of reinsurance recoveries or recoverables. The reserves at December 31 for each year are presented in the middle of the table. This represents the estimated amounts of losses and loss adjustment expense for claims arising in that year and all prior years that were unpaid at the balance sheet date, including losses incurred but not reported to us. The lower portion of the table presents the estimated amount of the previously recorded reserves based upon the experience as of the end of each succeeding year. The upper portion of the table presents the cumulative amounts subsequently paid as of successive years with respect to those claims. The estimates are revised as more information becomes known about payments and the frequency and severity of claims for particular years. A redundancy exists when the estimated reserves at December 31 are less than the prior reserve estimate; a deficiency exists when the estimated reserves are greater than the prior reserve estimate. The cumulative redundancy depicted in the table for any particular year represents the aggregate change in the initial estimates over all subsequent years.

The information for 1996 and 1997 relates to North Pointe Insurance only. The information for 1998 through 2001 relates to all of the Predecessor Companies, and the information for 2002 through 2006 relates to the insurance entities owned during that period excluding discontinued operations. The 2007 information includes Capital City Insurance Company, which was acquired on July 2, 2007.

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Analysis of Loss and Loss Adjustment Expense Development

	Years Ended December 31,
	1997		1998		1999		2000		2001		2002		2003		2004			2005			2006			2007
	(Dollars in thousands)
Cumulative amount of net liability paid as of:
One year later	$	5,821	$	14,070	$	17,508	$	17,896	$	20,687	$	20,472	$	18,778	$	22,334		$	21,775		$	24,368
Two years later		10,099		22,802		28,730		28,100		32,798		32,000		30,453		35,520			36,997
Three years later		12,881		29,385		34,019		33,796		39,098		38,680		37,067		44,497
Four years later		13,909		32,219		36,259		36,000		42,443		41,940		41,318
Five years later		14,290		33,462		36,969		36,653		43,629		43,758
Six years later		14,589		33,724		37,068		36,813		44,261
Seven years later		14,563		33,752		37,103		36,963
Eight years later		14,571		33,780		37,193
Nine years later		14,588		33,719
Ten years later		14,513
Gross liability-end of year		24,556		60,595		66,561		70,749		87,201		82,949		76,319		96,561			117,757			88,073			172,264
Reinsurance recoverable on unpaid losses(1)		3,846		14,555		16,449		20,544		30,497		28,446		22,681		36,544			60,022			33,231			51,141
Net liability-end of year		20,710		46,040		50,112		50,205		56,704		54,503		53,638		60,017			57,735			54,842			121,123
Gross liability re-estimated- latest		20,163		49,743		59,133		67,373		74,307		68,412		69,696		97,831			122,342			102,228
Reinsurance recoverable on unpaid losses re-estimated- latest		5,572		15,647		21,166		28,255		28,948		22,690		24,274		43,147			65,374			43,937
Net liability re-estimated-latest		14,591		34,096		37,967		39,118		45,359		45,722		45,422		54,684			56,968			58,291
Gross cumulative redundancy (deficiency)	$	4,393	$	10,852	$	7,428	$	3,376	$	12,894	$	14,537	$	6,623	$	(1,270	)	$	(4,585	)	$	(14,155	)
Net liability for losses and loss expenses	$	20,710	$	46,040	$	50,112	$	50,205	$	56,704	$	54,503	$	53,638	$	60,017		$	57,735		$	54,842		$	121,123
Liability re-estimated as of:
One year later		18,388		42,782		47,575		46,431		51,548		48,871		50,172		54,582			55,242			58,291
Two years later		16,287		38,995		43,018		44,734		46,998		47,605		46,024		53,718			56,968
Three years later		16,401		36,634		40,967		41,084		46,204		46,662		45,249		54,684
Four years later		15,124		35,457		39,092		39,888		45,805		46,214		45,422
Five years later		15,065		34,912		38,572		39,627		45,738		45,722
Six years later		15,094		34,535		38,286		39,269		45,359
Seven years later		14,871		34,280		38,080		39,118
Eight years later		14,694		34,222		37,967
Nine years later		14,690		34,096
Ten years later		14,591
Net cumulative redundancy (deficiency)	$	6,119	$	11,944	$	12,145	$	11,087	$	11,345	$	8,781	$	8,216	$	5,333		$	767		$	(3,449	)

(1) The December 31, 2005 reinsurance recoverable on unpaid losses includes $5,955,000 recoverable attributable to the Citizens’ assessment. (See Insolvency Funds and Associations; Mandatory Pools and Insurance Facilities).

We have maintained adequate overall reserves producing reserve redundancies in nine of the past ten years. We believe that our policy of analyzing industry loss data in setting our reserves has been a contributing factor to our reserve redundancies because in recent years industry loss averages have been higher than our own loss experience. Due to our consistent loss reserving practices, we have generally produced reserve redundancies. The $3.4 million deficiency in net reserves in 2007 is attributable to adverse developments from the Florida commercial lines of business that is not expected to result in future adverse development for North Pointe. As our historical data for a

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particular line of business increases, both in terms of the number of years of loss experience and the size of our data pool, we will increasingly rely on our own loss experience in establishing our reserves.

The table below presents a breakdown of the insurance companies’ reserves for gross losses and loss adjustment expenses between reserves for case losses and reserves for IBNR losses:

	As of December 31,
	2007		2006		2005
	(Dollars in thousands)
Case:
Commercial lines products
Liability	$	14,353	$	12,061	$	13,180
Property		10,561		9,643		8,246
Commercial multi-peril		10,476		14,483		19,942
Commercial automobile		10,149		3,705		4,325
Workers compensation		41,624		—		—
Other		1,785		1,063		772
Total commercial lines		88,948		40,955		46,465
Personal lines products
Personal automobile		3,388		4,758		6,128
Homeowners		1,325		2,713		8,893
Total personal lines		4,713		7,471		15,021
Total		93,661		48,426		61,486
IBNR:
Commercial lines products
Liability	$	24,435	$	12,042	$	13,742
Property		788		786		3,868
Commercial multi-peril		12,009		18,628		14,613
Commercial automobile		14,850		2,851		2,622
Workers compensation		22,749		—		—
Other		1,075		511		805
Total commercial lines		75,906		34,818		35,650
Personal lines products
Personal automobile		2,399		4,015		9,451
Homeowners		222		2,496		11,191
Personal Other		76		—		—
Total personal lines		2,697		6,511		20,642
Total		78,603		41,329		56,292
Total:
Commercial lines products
Liability	$	38,788	$	24,103	$	26,922
Property		11,349		10,429		12,114
Commercial multi-peril		22,485		33,111		34,555
Commercial automobile		24,999		6,556		6,947
Workers compensation		64,373		—		—
Other		2,860		1,574		1,577
Total commercial lines		164,854		75,773		82,115
Personal lines products
Personal automobile		5,787		8,773		15,579
Homeowners		1,547		5,209		20,084
Personal Other		76		—		—
Total personal lines		7,410		13,982		35,663
Total	$	172,264	$	89,755	$	117,778

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The increase in our commercial lines loss and loss adjustment expenses reserves as of December 31, 2007 as compared to December 31, 2006 was primarily attributable to the acquisition of Capital City. The commercial reserves related to Capital City totaled $92.0 million as of December 31, 2007. The decrease in our personal lines loss and loss adjustment expenses reserves as of December 31, 2007 compared to December 31, 2006 was primarily attributable to the reduction of the homeowners line of business through both tighter underwriting and ultimately the sale of Home Pointe Insurance Company, which is excluded from this table and reported as discontinued operations in the financials.

The decrease in our commercial and personal lines loss and loss adjustment expenses reserves as of December 31, 2006 as compared to December 31, 2005 was primarily attributable to no hurricane activity in 2006. For example, the IBNR related to Hurricane Wilma decreased $17.4 million, from $18.4 million in 2005 to $975,000 in 2006, and case reserves for all hurricanes decreased $17.0 million, from $22.6 million in 2005 to $5.6 million in 2006.

Cash and Investments

Our investment strategy is to invest in marketable and highly liquid investment grade securities. We employ outside money managers to manage our investment portfolio based on investment guidelines approved by our board of directors. Our board reviews these guidelines annually, and we have a finance committee, currently comprised of three independent directors, which meet at least quarterly to discuss our performance relative to our objectives. Our key objectives in developing our investment guidelines include maintaining sufficient liquidity to meet insurance operation obligations, ensuring capital preservation, and maximizing total return on the portfolio.

Our investment portfolio consists of investment-grade fixed-income instruments and equity securities listed on major exchanges. We believe our investment portfolio is highly liquid, and we manage it to have a relatively short duration. Our portfolio is not subject to foreign exchange risk, and we do not utilize options or otherwise leverage our portfolio. In addition, we employ stringent diversification rules to minimize concentration of risk.

Recently, the U.S. secondary mortgage market has experienced disruptions resulting from credit quality deterioration in a significant portion of loans originated, primarily to non-prime and sub-prime borrowers. Our investment portfolio includes investments in mortgage-backed and asset-backed securities. As of December 31, 2007, mortgage and asset-backed securities constituted approximately 28.8% of our fixed income portfolio. Only a small portion of these securities are secured by sub-prime mortgage collateral. These securities are adequately collateralized, AAA rated investment quality that we currently expect will continue to perform.

Our cash and investment portfolio totaled $271.9 million and $165.8 million as of December 31, 2007 and 2006, respectively, and is summarized as follows:

	2007					2006
			Percent of					Percent of
	Amount		Portfolio			Amount		Portfolio
	(Dollars in thousands)
Fixed-income:
U.S. governmental and agency securities	$	15,077		5.5	%	$	30,526		18.4	%
Foreign government		307		0.1	%		300		0.1	%
Corporate securities		68,393		25.2	%		29,421		17.7	%
Municipal securities		38,516		14.2	%		7,035		4.2	%
Mortgage-backed securities		66,185		24.2	%		32,360		19.5	%
Asset-backed securities		12,203		4.6	%		7,692		4.7	%
Total fixed-income		200,681		73.8	%		107,334		64.6	%
Cash and cash equivalents		64,890		23.9	%		46,039		27.8	%
Equity securities — common shares		3,054		1.1	%		11,376		6.9	%
Equity securities — preferred shares		1,037		0.4	%		—		0.0	%
Other investment		2,241		0.8	%		1,088		0.7	%
Total	$	271,903		100.0	%	$	165,837		100.0	%

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The following is a summary of the credit quality of the fixed-income portfolio as of December 31, 2007:

Treasury and Government Agency	7.5	%
“AAA”	65.3	%
“AA”	15.1	%
“A”	8.0	%
“BBB”	3.9	%
“BB”	0.1	%
“CCC”	0.1	%
Total	100.0	%

We regularly evaluate our investment portfolio to identify other-than-temporary impairments of individual securities. We consider many factors in determining if an other-than-temporary impairment exists, including:

•  the length of time and extent to which fair value of the security has been less than cost;

•  the financial condition and near-term prospects of the issuer of the security; and

•  our ability and willingness to hold the security until the fair value is expected to recover.

Accordingly, when a decline in the value of a specific investment is considered to be “other-than-temporary,” a provision for impairment is charged to earnings. While it is not possible to accurately predict if or when a specific security will become impaired, charges for other-than-temporary impairment could be material to results of operations in a future period. See notes to the accompanying consolidated financial statements for further discussion of other-than-temporary impairment of investments.

We have historically maintained a high concentration of investment-grade securities in the fixed-income portion of our investment portfolio and have limited exposure to lesser rated bonds, or so-called “high yield” instruments. As of December 31, 2007, 95.9% of our fixed-income securities were rated (by Standard & Poor’s Rating Services or Moody’s Investors Services, Inc.) “A” or higher or were issued by governmental agencies rated “AAA.”

We also seek to maintain a conservative mix between fixed-income and equity securities in our investment portfolio, with a high concentration in bonds, cash and cash equivalents and less than 10% exposure to equities. We engage New England Asset Management to manage our fixed-income securities and Munder Capital Management to manage our equity securities portfolio.

We measure the performance of our debt securities portfolio based on a comparison to a benchmark portfolio which reflects comparable characteristics such as credit quality and duration. Our benchmark incorporates a weighting of 73% of the Lehman Intermediate Government/Credit Index, 23% of the Lehman Mortgage Backed Securities Index and 4% of the three-month U.S. Treasury bill.

We benchmark the performance of our equity securities portfolio against the S&P 500 Index and a blended value index which incorporates a weighting of 50% of the Russell 200 Value Index, 35% of the Russell Mid-Value Index and 15% of the Russell 2000 Value Index.

Certain information required by this item is incorporated by reference to Note 7 of the Consolidated Financial Statements and “Management’s Discussion and Analysis” included elsewhere in this Annual Report on Form 10-K.

Reinsurance

We purchase reinsurance to reduce our exposure to liability for individual risks and claims and to protect against catastrophic losses. Reinsurance enables us to transfer, or cede, a portion of our exposure on a risk to another insurer called a reinsurer. We pay the reinsurer a portion of the premium we receive on a policy, and the reinsurer assumes part of our exposure under that policy. The reinsurer’s assumption of risk and agreement to pay losses is set forth in a contract often called a treaty.

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When we purchase reinsurance, we remain liable for policy claim losses if the reinsurer fails to meet its obligations under the reinsurance treaty due to insolvency or other factors. To mitigate this inherent credit risk, we carefully select our reinsurers. In so doing, we evaluate numerous factors, including the reinsurer’s financial stability, history of responding to claims, continuity of relationships with our company and reputation in the industry. We also review the reinsurer’s A.M. Best rating and generally select only reinsurers with a minimum rating of “A−” (Excellent). If a reinsurer’s credit rating falls below that level, we review the circumstances and, if we consider it necessary, attempt to replace the reinsurer.

The following table summarizes amounts due us from reinsurers as of December 31, 2007. The amounts due consist of recoverables from losses and loss adjustment expenses (“LAE”), and prepaid reinsurance premiums:

		Gross
Reinsurer	A.M. Best Rating	Amount Due
		(Dollars in thousands)
General Reinsurance Corporation	“A++” (Superior)	$	16,864
National Workers Compensation Reinsurance Pool	N/A(1)		14,591
Swiss Reinsurance American Corporation	“A+” (Superior)		8,583
MCCA	N/A(1)		5,379
Platinum Reinsurance Company	“A” (Excellent)		4,779
TOA Reinsurance Company of America	“A” (Excellent)		4,682
National Flood Insurance Program	N/A(1)		1,486
Folksamerica Reinsurance Company	“A-” (Excellent)		1,480
Munich Reinsurance America, Inc.	“A+” (Superior)		1,220
Lloyd’s Syndicate Number 4472	N/A(1)		1,043
All Other	“B++” or better		4,141
Total		$	64,248

(1) These reinsurers do not receive A.M. Best ratings.

Our reinsurance agreements are typically for one-year terms and are renegotiated annually. We review each agreement as it comes up for renewal and negotiate with our reinsurers to make appropriate modifications in light of market conditions and the price of reinsurance. In soft markets, when reinsurance premiums may be lower due to greater availability and capacity, we may make more liberal use of reinsurance to shift risk. In contrast, in hard markets, when availability may be tighter and prices may be higher, we may retain a greater piece of each risk that we write or be forced to write fewer policies or cancel existing policies. We seek to maintain a balance between growth in surplus and the cost of reinsurance.

We augment our excess of loss reinsurance coverages by purchasing catastrophe reinsurance that is designed to cover us for catastrophic perils that are unpredictable as to location, frequency and severity. Our primary catastrophic exposure is property damage due to hurricanes, tornadoes, hail, and winter storms. As part of our overall risk management strategy, we annually evaluate our probable maximum loss using catastrophe exposure modeling developed by independent sources.

Our Florida homeowners catastrophe reinsurance agreement expired May 31, 2007 and was replaced with a new reinsurance contract effective June 1, 2007. The new reinsurance contract relies heavily upon the Florida Hurricane Catastrophe Fund (FHCF), which is a state-sponsored reinsurance program. North Pointe Casualty’s in force premiums for the Florida homeowners lines of business were less than $500,000 in 2007. The FHCF provides North Pointe Casualty 90% coverage for coverage for up to approximately $83,000 of losses in excess approximately $29,000 retention in the “FHCF Main Layer,” and 90% coverage for approximately $64,000 in losses in excess of approximately $112,000 in the “FHCF TICL Layer.”

The North Pointe Insurance workers compensation reinsurance agreement became effective May 31, 2007, and provided 100% coverage for up to $14.0 million in losses in excess of $1.0 million in retention. This reinsurance

17

agreement was replaced January 1, 2008 with a new contract providing 100% coverage up to $18.0 million in losses in excess of $2.0 million retention and includes North Pointe and Capital City Insurance companies.

Our commercial and Midwest homeowners’ catastrophe reinsurance agreements, effective July 1, 2007, provide 100% coverage for up to $20.0 million in losses in excess of $5.0 million retention. This includes one mandatory reinstatement for the reinsurance utilized and requires reinstatement premiums to be equal to 100% of the original premiums paid, calculated on a pro rata basis, based on the coverage utilized. On January 1, 2008, the agreement was amended to add Capital City Insurance Company.

Capital City Insurance Company renewed a commercial auto excess of loss treaty effective July 1, 2007, with an automatic renewal January 1, 2008. This commercial auto contract provides 100% coverage up to $1.0 million in losses in excess of $300,000 retention. Additionally, due to the nature of limits on the South Carolina Fleet, the company carried no reinsurance on its commercial auto coverages under this program. Facultative reinsurance is purchased for coverage limits that exceed the primary reinsurance treaty’s limits.

On November 1, 2007, we purchased lawyers professional liability excess of loss reinsurance. The lawyers professional liability agreement provides us with coverage $4.5 million excess of loss with $500,000 retention.

Effective January 1, 2008, we purchased a property per risk treaty for commercial and personal property lines, excluding Florida homeowners, but including homeowners in Midwest, Arizona, Hawaii, Nevada, and South Carolina, up to $10.0 million per risk, subject to $1.0 million retention for North Pointe and Capital City Insurance companies.

We also purchase corporate clash reinsurance coverage, effective January 1, 2008, that covers exposure to, among other things, losses incurred by more than one policyholder from a single casualty occurrence, losses in excess of policy limits and punitive damages that result from our bad faith or errors and omissions. Our current corporate clash reinsurance program provides coverage of up to $5.0 million per occurrence in excess of $1.0 million in all states in which we operate and for all of our casualty lines of business.

We purchase property facultative reinsurance (reinsurance which is provided on an individual risk basis) when we insure a high value risk, such as a bowling center, that we determine needs excess reinsurance protection beyond that offered by our other treaties. These are purchased on a case-by-case basis and vary in value depending on the risk being insured.

We purchase reinsurance both directly from the reinsurer and through reinsurance brokers, as we believe that this balance helps us obtain more favorable pricing from all of our reinsurers. We currently do not have any finite reinsurance arrangements directly with any reinsurers or through brokered treaties, and we have no significant exposure to any profit-sharing or contingent rate provisions under our current reinsurance agreements.

Ratings

Insurance companies can apply to receive a financial strength rating from A.M. Best. These ratings range from “A++” (Superior) to “F” (In Liquidation). North Pointe Insurance’s financial strength rating is “A−” (Excellent), North Pointe Casualty’s rating is “B+” (Good), Capital City Insurance’s rating is “B++” (Good), and the issuer credit rating of North Pointe Holdings is “BB+”. North Pointe Insurance and Capital City Insurance’s financial size category is VI (adjusted policyholders’surplus from $25.0 million to $50.0 million), and North Pointe Casualty’s financial size category is V (adjusted policyholders’surplus from $10.0 million to $25.0 million).

In assigning ratings, A.M. Best evaluates, among other things, an insurance company’s profitability, leverage and liquidity, its lines of business, the adequacy and soundness of its reinsurance, the quality and market value of its investment portfolio, the adequacy of its reserves, the level of its surplus, its capital structure and stability, and the performance and competence of its management.

Competition

The property and casualty insurance industry is highly competitive, and except for certain regulatory considerations, there are relatively few barriers to entry. In this fragmented market, we compete with both large national insurance providers and smaller regional companies on the basis of customer service, coverages offered,

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claims handling, price, agent commission and financial strength ratings. Many of our competitors have higher ratings, more capital, greater resources and additional access to capital than we have. They may offer a wider range of products and services than we do and may cover larger geographic markets. It is possible that new entrants to our markets may arise and create additional competition, leading to potentially lower prices and/or higher limits offered.

Regulatory Environment

General

The insurance industry is highly regulated. State insurance laws and regulations are complex and each jurisdiction’s requirements are different. State insurance regulators generally have broad administrative power with respect to all aspects of the insurance business.

North Pointe Financial, our wholly-owned subsidiary, is the immediate parent company of our operating insurance companies, North Pointe Insurance, North Pointe Casualty and Capital City Insurance. In addition in 2005, we organized a new captive insurance company, Midfield, domiciled in the District of Columbia. Our insurance companies and our other affiliates are subject to regulation by insurance regulatory agencies in each state in which they do business. This regulation is designed for the protection of our policyholders rather than our shareholders. The regulatory requirements and restrictions include or involve the following:

•  prior approval of the change in control of our company or our insurance companies;

•  approval of the policy forms and premium rates of our insurance companies writing admitted business;

•  standards of solvency, including statutory and risk-based capital requirements establishing the minimum amount of capital and surplus that must be maintained by our insurance companies;

•  restrictions concerning which assets of our insurance companies are admissible for purposes of calculating their capital and surplus;

•  licensing of insurers, their agents and various other insurance-related entities;

•  advertising and marketing practices;

•  restrictions on the nature, quality and concentration of the investments of our insurance companies;

•  assessments by guaranty associations;

•  restrictions on the ability of our insurance companies to pay dividends to North Pointe Financial, our stock holding company subsidiary;

•  restrictions on transactions between our insurance companies and their affiliates;

•  restrictions on the size of risks insurable under a single policy;

•  rules requiring deposits for the benefit of policyholders;

•  rules requiring certain methods of accounting;

•  periodic examinations of our operations and finances;

•  claims practices;

•  rules prescribing the form and content of records of financial condition required to be filed; and

•  rules requiring adequate reserves for unearned premium, losses and loss expense, or for other purposes.

Dividends

We are a holding company with no business operations of our own. Consequently, our ability to pay dividends to shareholders, meet our debt payment obligations and pay our taxes and administrative expenses is largely

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dependent on intercompany service agreements with, and dividends from, our subsidiaries. Our key operating subsidiaries are insurance companies with significant regulation and restrictions with regards to paying dividends. See “Liquidity and Capital Resources — Capital Constraints,” incorporated elsewhere within this Annual Report on this Form 10-K.

Insolvency Funds and Associations, Mandatory Pools and Insurance Facilities

Most states require admitted property and casualty insurance companies to become members of insolvency funds or associations which generally protect policyholders against the insolvency of the admitted insurance companies. Members of the fund or association must contribute to the payment of certain claims made against insolvent insurance companies through annual assessments. The annual assessments required in any one year will vary from state to state, and are subject to various maximum assessments per line of insurance.

Our insurance companies are members of the statutorily created insolvency funds or associations in all states where they are authorized to transact business. We expensed $834,000, $2.3 million and $953,000 in 2007, 2006 and 2005, respectively, in connection with these combined assessments (including Citizens, Florida Insurance Guaranty Association, Inc. (FIGA), and South Carolina Property and Casualty Insurance Guarantee Association (SCIGA) assessments discussed below). These payments may be subject to recovery through future policy surcharges and premium tax reductions.

We sold the renewal rights to our non-standard personal automobile insurance line, which we only wrote in Michigan, in October 2004. To offer this insurance in Michigan, we had to be a member of the Michigan Catastrophic Claims Association, or MCCA. The MCCA is a statutorily-created nonprofit association providing mandatory reinsurance to its members. This reinsurance indemnifies its members for personal injury protection losses exceeding specified limits. The MCCA must provide this reinsurance and we, like all members of MCCA, must accept and pay for the reinsurance. The cost of this insurance was passed on to our insureds.

Certain of our insurance company subsidiaries are subject to assessments from Citizens Property Insurance Company, or Citizens, which was created by the state of Florida to provide insurance to both commercial and personal property owners unable to obtain coverage in the private insurance market. Citizens, at the discretion of its board of directors, can levy annual, interim, and/or emergency assessments to cover its financial deficits for up to the greater of 10% of the deficit or 10% of Florida property premiums industry-wide for the prior year.

An insurer may recoup a regular assessment through a surcharge to policyholders. In order to recoup its Citizens regular assessment, an insurer must file for a policy surcharge with the Florida Department of Insurance prior to imposing such surcharge on its policyholders. To the extent that reinsurers cover the assessment, they are reimbursed from the surcharges.

Citizens is designed so that the ultimate cost is borne by policyholders; however, the exposure to assessments and the availability of recoupments vary between competing insurance companies. Market conditions may affect an insurer’s ability to fully recoup the assessment. Moreover, even if surcharges and assessments do offset each other, they may not offset each other in the same fiscal period due to the ultimate timing of the assessments and recoupments and the possibility the related coverages are not written in subsequent years.

In 2007 and 2006, we did not receive any assessments from Citizens. At December 31, 2005, we accrued a Citizens assessment based on an estimated deficit of $1.7 billion that resulted from 2005 hurricane losses and adverse development from 2004 hurricane losses. In June 2006, the Florida Legislature appropriated $715.0 million to help offset this deficit. During the fourth quarter of 2006, we received the actual assessment from Citizens that was calculated based on a $163.0 million deficit. The change in Citizens deficit resulted in recognizing income of $417,000 in 2006. The Citizens’ deficit could change because ultimate hurricane losses are difficult to estimate. Additionally, the Florida legislature may further alter how the existing and/or future Citizens’ deficits will be recovered. In August 2005, we were assessed $2.1 million by Citizens related to the 2004 hurricanes. After reinsurance, our retention was $131,000 plus $78,000 of reinstatement charges resulting in a $138,000 after-tax charge in 2005. As of December 31, 2005, we accrued a liability of $6.4 million and a $6.0 million reinsurance recoverable in anticipation of further Citizens assessments. Our retention of $438,000 plus $170,000 of reinstatement charges resulted in a $401,000 after-tax charge to income in 2005, which is in addition to the $138,000 after-

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tax charge referred to above. Citizens made no assessments prior to 2005. Because emergency assessments are levied directly on policyholders in the form of surcharges and are not the obligation of insurance carriers, no liability has been established for anticipated emergency assessments.

FIGA services Florida policyholders’ claims for companies that become insolvent and are ordered into liquidation. To fund deficits that may exist within insolvent companies, FIGA can assess other property and casualty insurance companies writing in Florida. In 2007, we received a regular assessment from FIGA for $749,000. The assessment represents two percent of direct premiums written in the State of Florida in 2006. The assessment was received in October of 2007 and paid in November 2007. In 2006, we received two assessments (a regular and an emergency) from FIGA, each for $1.4 million. Each assessment equaled two percent of the Company’s $69.1 million direct premiums written in the State of Florida in 2005. The regular assessment was received in the second quarter of 2006 and was paid in July 2006. The emergency assessment was received in the fourth quarter of 2006 and was paid in January 2007. Regular assessments are capped at two percent of the assessed companies’ annual direct premiums written in the prior year. FIGA has publicly proposed increasing the cap on any one year’s regular assessment from two percent to four percent. The 2006 assessments related to the liquidation of the POE Financial Insurance Group including Southern Family Insurance Company, Atlantic Preferred Insurance Company and Florida Preferred Property Insurance Company. In the event that carriers become insolvent in any state, including Florida, the Company could be subject to assessments from such states’ guaranty organizations.

To sell homeowners insurance in Florida, reinsurance must be purchased from the FHCF. See Business — Reinsurance. The FHCF is a state-administered reinsurance program in Florida providing mandatory reinsurance for hurricane losses to any insurer writing covered policies — including homeowners insurance — in Florida. The FHCF charges each participating insurer an actuarially indicated premium for the reinsurance it provides, which generally corresponds to the insurer’s market share as of June in the year in which coverage is sought. The FHCF policy year is from each June 1st to the following June 1st. In addition, if the revenue generated through the premiums charged by the FHCF is insufficient to fund the obligations, costs and expenses of the FHCF, the Florida Office of Insurance Regulation may levy an emergency assessment on all property and casualty insurers doing business in Florida. Insurers may pass this assessment through to their policyholders, but insurers are not responsible for assessments that are uncollectible from their policyholders.

The SCIGA services South Carolina policyholders’ claims for companies that become insolvent and are ordered into liquidation. To fund deficits that may exist within insolvent companies, SCIGA can assess other property and casualty insurance companies writing in South Carolina. In 2007, we received an assessment from SCIGA for $678,000. This assessment equaled two percent of the Company’s $33.9 million direct premiums written of workers’ compensation business in the State of South Carolina in 2002. The assessment was received and paid in 2007. The 2007 assessment related to the liquidation of the liquidation of Legion Insurance Company. In the event that carriers become insolvent in any state, including South Carolina, the Company could be subject to assessments from such states’ guaranty organizations.

IRIS Ratios

The NAIC has developed a set of 13 financial ratios referred to as the Insurance Regulatory Information System, or IRIS. IRIS is part of a regulatory early warning system used to monitor the financial health and condition of insurance companies. On the basis of statutory financial statements filed with state insurance regulators, the NAIC annually calculates these IRIS ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. The NAIC has established a “usual” range for each of the IRIS financial ratios. A ratio outside the usual range is not considered failing because these ratio ranges are set for all companies. It is not unusual for financially sound companies to have several ratios falling outside the usual ranges. If four or more of a company’s IRIS ratios fall outside the usual ranges, however, an insurance company may receive inquiries from individual state insurance departments.

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As of December 31, 2007, North Pointe Insurance had three IRIS ratios outside the usual range, as follows:

		North Pointe
Ratio	Usual Range	Insurance Ratio
Change in net premiums written	+33% to −33%		41.0	%
Gross change in policyholders’ surplus	+50% to −10%		(23.0	)%
Net change in policyholders’ surplus	+25% to −33%		(23.0	)%

The unusual value for change in net premiums written resulted from the addition of pet health and Michigan workers’ compensation during the year. The net premiums written were further increased as a result of a reduction in the reinsurance ceded.

The unusual values for the gross change in policyholders’ surplus and the net change in adjusted policyholders’ surplus resulted mainly from a $5.0 million dividend paid during the year and a $3.9 million change in non-admitted assets.

As of December 31, 2007, North Pointe Casualty had one IRIS ratios outside the usual range, as follows:

		North Pointe
Ratio	Usual Range	Casualty Ratio
Change in net premiums written	+33% to −33%		50	%

The unusual value for change in net premiums written resulted from the movement of Florida commercial liability business from North Pointe Insurance Company to North Pointe Casualty.

As of December 31, 2007, Capital City Insurance Company had no IRIS ratios outside the usual range.

Captive Insurance Company Regulation

We organized and activated Midfield Insurance Company as a captive insurance subsidiary in 2005. Midfield is organized and licensed as a pure captive insurance company under the laws of the District of Columbia. A captive insurance company assumes only the risks of its parent and/or affiliated companies.

Generally, captive insurance companies are not subject to the same degree of regulation as are other insurance companies. For example, the laws and regulations applicable to non-captive insurance companies domiciled in the District of Columbia do not apply to captive insurance companies domiciled in the District of Columbia. As a result, Midfield will not be subject to, among other things, the District’s rate and form filing requirements, guaranty fund assessments, or insurance regulatory trust fund assessments. However, Midfield is required to file an annual report with the Commissioner of the District of Columbia Department of Insurance, Securities and Banking and will be subject to periodic financial examinations by the Commissioner’s office. Moreover, Midfield’s investments will be subject to review and possible disapproval by the Commissioner’s office. Midfield will be subject to minimum capital and surplus requirements for captive insurance companies and premium taxes levied by the District of Columbia. As of December 31, 2007, Midfield’s capital and surplus was $6.8 million.

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Item 1A.   RISK FACTORS

Risks Relating to the Pending Transaction with QBE Holdings

We are subject to business uncertainties and contractual restrictions while the transaction with QBE Holdings, Inc. is pending.

Uncertainty about the effect of the pending acquisition of North Pointe Holdings Corporation by QBE Holdings, Inc. on our employees and other constituents may have an adverse effect on us. These uncertainties may impair our ability to retain and motivate key personnel until the transaction is completed and could cause others that deal with us to defer decisions concerning us, or to seek to change existing business relationships with us. If key employees depart because of uncertainty about their future roles and the potential complexities of integration, the combined company’s business following the transaction could be harmed. In addition, the agreement and plan of merger restricts us from making certain acquisitions or dispositions and taking other specified actions without the consent of QBE Holdings, Inc. until the transaction is completed. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the acquisition.

Failure to complete the transaction could negatively affect the stock price and the future business and financial results of the Company.

There is no assurance that North Pointe Holdings Corporation and QBE Holdings, Inc. will receive the necessary regulatory approvals or satisfy the other conditions to the completion of the transaction. If the transaction is not completed for any reason, we will be subject to several risks, including the following:

•  We may be required to pay and reimburse QBE Holdings amounts of up to approximately $4 million in the aggregate if the agreement and plan of merger is terminated under certain circumstances;

•  The current market price of our common stock may reflect a market assumption that the transaction will occur, and a failure to complete the transaction could result in a decline in the market price of our common stock;

•  Many costs relating to the transaction (such as legal, accounting, and a portion of our financial advisory fees) are payable by North Pointe whether or not the transaction is completed;

•  There may be substantial disruption to our business and a distraction of our management and employees from day-to-day operations because matters related to the transaction may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial; and

•  We will continue to face the risks that we currently face as an independent company, as further described herein.

If the transaction is not completed, the risks described above may materialize and materially adversely affect our business, financial results, financial condition, and stock price.

Our potential inability to integrate acquired operations could have a negative effect on our expenses and results of operations.

In the past, we have grown through strategic acquisitions, including the acquisition of the Capital City entities, and we may engage in strategic acquisitions in the future to strengthen and expand our product and customer base. The full benefits of these acquisitions, however, require integration of administrative, financial, underwriting and marketing approaches, and personnel. If we are unable to successfully integrate these acquisitions, we may not realize the benefits of the acquisitions, and our financial results may be negatively affected. A completed acquisition may adversely affect our financial condition and results of operations, including our capital requirements and the accounting treatment of these acquisitions. Completed acquisitions may also lead to significant unexpected liabilities after the consummation of these acquisitions.

It is possible the integration of the Capital City entities, which were acquired in July 2007, could result in: the loss of key employees; disruptions in controls, procedures and policies; disruptions to daily operations as a result of

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expected computer system conversions; the potential loss of agents and of policy holders; and the potential for a higher than currently anticipated claims and losses. These and other factors could affect our ability to realize projected cost savings and the timing of these savings, and could affect our ability to retain and grow the Capital Cities agent and policyholder base.

Our success depends on our ability to price accurately the risks we underwrite.

Our results of operations and financial condition depend on our ability to underwrite and set premium rates accurately for a wide variety of risks. Adequate rates are necessary to generate premiums sufficient to pay losses, loss adjustment expenses and underwriting expenses and to earn a profit. To price our products accurately, we must: collect and properly analyze a substantial amount of data; develop, test and apply appropriate pricing techniques; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully, and as a result price our products accurately, is subject to a number of risks and uncertainties, some of which are outside our control, including:

•  the availability of sufficient reliable data and our ability to properly analyze available data;

•  the uncertainties that inherently characterize estimates and assumptions;

•  our selection and application of appropriate pricing techniques; and

•  changes in applicable legal liability standards and in the civil litigation system.

The insurance policies we issue and our reinsurance contracts generally renew annually, but, in most cases, there is a timing difference between when we know what reinsurance rates we will be charged and when we can charge new premium rates to existing policyholders. We are required to wait until a policy renews before we can increase the premium rate on that policy. In the event reinsurance rates increase significantly in the interim, there may be a period of time during which our policy pricing may not be sufficient to cover the costs of available reinsurance coverage, thereby adversely affecting our profitability or requiring us to bear additional risk.

Consequently, we may under price risks, which would adversely affect our profit margins, or we may overprice risks, which would reduce our sales volume and competitiveness. In either case, the profitability of our insurance companies could be materially and adversely affected.

Changes in regulation could adversely affect our business.

We cannot assure that states will not make existing insurance-related laws and regulations more restrictive in the future or enact new restrictive laws. New or more restrictive laws and regulations in any state in which we conduct business could make it more expensive for us to conduct our business, restrict the premiums we are able to charge or otherwise change the way we do business. In such event, we might seek to reduce our insurance policy writings in, or to withdraw entirely from, the state in question. In addition, from time to time, Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. We cannot predict whether and to what extent new laws and regulations that would affect our business will be adopted, the timing of adoption or the effects, if any, they would have on our business, results of operations or financial condition.

If market conditions cause reinsurance to be more costly or unavailable, we may be required to bear increased risks or reduce the level of our underwriting commitment.

As part of our overall risk and capacity management strategy, we purchase one or more types of reinsurance coverage, including excess of loss, catastrophe, corporate clash and facultative reinsurance coverage for most of the risks underwritten by our insurance company subsidiaries. Market conditions beyond our control determine the availability and cost of the reinsurance we purchase, which may affect the level of our business and profitability. We may be unable to maintain our current reinsurance coverage or to obtain, on a timely basis, other reinsurance coverage in adequate amounts or at acceptable rates. Similar risks exist whether we are seeking to replace coverage terminated during the applicable coverage period or to renew or replace coverage upon the expiration thereof.

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Moreover, there may be a situation in which we have more than two catastrophic events within one policy year. Because our current catastrophe reinsurance programs only allow for one automatic reinstatement, we would be required to obtain new catastrophe reinsurance to maintain our current level of catastrophe reinsurance coverage. We may find it difficult to obtain such coverage, particularly in the middle of the hurricane season. For example, if a second event has just occurred and, at the same time, another tropical storm or hurricane is approaching the coast, posing a threat of a third event, the reinsurance market may exclude that particular risk from third event coverage.

If we are unable to renew our expiring coverage or to obtain new reinsurance coverage, either our net exposure to risk would increase or, if we are unwilling to bear an increase in net risk exposures, we would have to reduce the amount of risk we underwrite. See “Business — Reinsurance.”

We are subject to comprehensive regulation that poses particular risks to our ability to earn profits.

Our insurance company subsidiaries are subject to comprehensive regulation by state insurance agencies in Michigan, Florida and South Carolina, the states in which they are domiciled. They are also subject to regulation by state insurance agencies in the states where they sell insurance products, issue policies and handle claims. Additionally, our captive reinsurance subsidiary is subject to regulation under the laws of the District of Columbia. Our ability to comply with these laws and regulations and obtain necessary and timely regulatory action is and will continue to be critical to our success and ability to earn profits.

Examples of state regulation that pose particular risks to our ability to earn profits include the following:

•  Required licensing.  Our insurance company subsidiaries operate under licenses issued by various state insurance agencies. If a regulatory authority were to deny or delay granting a new license, our ability to enter that market quickly or offer new insurance products in that market would be substantially impaired.

•  Regulation of insurance rates and approval of policy forms.  The insurance laws of most states in which we operate require insurance companies to file insurance rate schedules and policy forms for review and approval. If rate increases we deem necessary are not approved by a state insurance agency, we may not be able to respond to market developments and increased costs in that state. Likewise, if insurance policy forms we seek to use are not approved by a state insurance agency, our ability to offer new products and grow our business in that state would be substantially impaired.

•  Restrictions on cancellation, non-renewal or withdrawal.  Many states have laws and regulations restricting an insurance company’s ability to cease or significantly reduce its sales of certain types of insurance in that state. These laws and regulations could limit our ability to exit or reduce our business in unprofitable markets or discontinue unprofitable products. For example, we experienced difficulty in exiting the California non-standard automobile insurance market in a timely manner due to regulatory constraints on our ability to cease renewing existing policies.

•  Transactions between insurance companies and their affiliates.  Transactions between our subsidiary insurance companies and their affiliates generally must be disclosed to — and in most cases approved by — state insurance agencies. State insurance agencies may refuse to approve or delay their approval of a transaction, which may impact our ability to innovate or operate efficiently.

Compliance with these state laws and regulations requires us to incur administrative costs that decrease our profits. These laws and regulations may also prevent or limit our ability to underwrite and price risks accurately, obtain timely rate increases necessary to cover increased costs, discontinue unprofitable relationships or exit unprofitable markets, and otherwise grow our business profitably. In addition, our failure to comply with these laws and regulations could result in actions by state or federal regulators, including the imposition of fines and penalties or, in an extreme case, revocation of our ability to do business in one or more states. Finally, we could face individual, group and class-action lawsuits by our policyholders and others for alleged violations of certain state laws and regulations. Each of these regulatory risks would adversely affect our profitability.

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Our financial results may be adversely affected by conditions in the states where our business is concentrated.

While we currently offer insurance products in 49 states, our business is concentrated to some extent in two states, Florida and Michigan. For the year ended December 31, 2007, 38.7% of our net premiums earned related to policies issued to customers in Florida and 17.5% of our net premiums earned related to policies issued to customers in Michigan. Our revenues and profitability are subject to prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do business. Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies which are more geographically diversified. Because our business is concentrated in this manner, the occurrence of one or more catastrophic events or other conditions affecting losses in Michigan or Florida could have an adverse effect on our financial condition and results of operations.

Our results and financial condition may be adversely affected by our failure to establish adequate loss and loss adjustment expense reserves.

We maintain reserves to cover our estimated ultimate liability for losses and related loss adjustment expenses for both reported and unreported claims on insurance policies issued by our insurance companies. For certain of our lines of business, several years may elapse between the occurrence of an insured loss, the reporting of the loss to us and our payment of the relevant claim. The establishment of appropriate reserves is an inherently uncertain process involving actuarial and statistical projections of what we expect to be the cost of the ultimate settlement and administration of claims based on historical claims information, estimates of future trends in claims severity and other variable factors such as inflation. Due to the inherent uncertainty of estimating reserves, it has been and will continue to be necessary to revise estimated future liabilities as reflected in our reserves for claims and related expenses. Our gross loss and loss adjustment expense reserves totaled $172.3 million at December 31, 2007. Our loss and loss adjustment expense reserves, net of reinsurance, were $121.1 million at that date. We cannot be sure that our ultimate losses and loss adjustment expenses will not exceed our reserves. If and to the extent that our reserves prove inadequate, we will be required to increase our reserves for losses and loss adjustment expenses and incur a charge to earnings in the period during which our reserves are increased, which could materially and adversely affect our financial condition and results of operations. For example, based on our range analysis in “Unpaid Losses and Loss Adjustment Expenses,” if our net loss and loss adjustment expense reserves as of December 31, 2007 were greater by $11.7 million or lower by $6.4 million, a corresponding decrease or increase in our net income for 2007 of $7.7 million or $4.2 million, respectively, would result. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and “— Unpaid Losses and Loss Adjustment Expenses,” included elsewhere within this Annual Report on Form 10-K.

A reduction in our insurance company subsidiaries’ A.M. Best financial strength ratings could adversely affect our business and financial condition.

A.M. Best, generally considered to be a leading authority on insurance company ratings and information, has currently assigned our insurance company subsidiaries financial strength ratings of “A−” (Excellent) for North Pointe Insurance, “B+” (Good) for North Pointe Casualty, and “B++” (Good) for Capital City. A.M. Best assigns financial strength ratings ranging from “A++” (Superior) to “F” (In Liquidation). According to A.M. Best, “B+” and “B++” ratings are assigned to insurers that have a good ability to meet their current obligations to policyholders. A.M. Best’s ratings reflect its opinion of an insurance company’s financial strength, operating performance and ability to meet its obligations to policyholders. These ratings are not evaluations directed to potential purchasers of our common stock and are not recommendations to buy, sell or hold our common stock. These ratings are subject to change at any time and could be revised downward or revoked in the sole discretion of A.M. Best. The failure of either North Pointe Insurance or North Pointe Casualty to maintain their A.M. Best ratings could cause our current and future independent agents and insureds to choose to transact their insurance business with more highly rated competitors. Because lenders and reinsurers will use our A.M. Best ratings as a factor in deciding whether to transact business with us, the failure of our insurance company subsidiaries to maintain their current ratings could dissuade a lender or reinsurance company from conducting business with us or might increase our interest or reinsurance costs. In addition, the failure of our insurance companies to maintain an A.M. Best rating

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of “B+” (Good) or higher would constitute an event of default under the terms of our existing credit facility. These factors would likely have a material adverse effect on our business and financial condition.

We could incur significant losses or a shortage of liquidity if our reinsurers are unable to pay or do not pay our claims timely.

We transfer some of the risk we write to reinsurance companies in exchange for a percentage of the premium we receive in connection with the risk. Although our reinsurers are liable to us to the extent we transfer risk to them, if any of our reinsurers cannot pay their reinsurance obligations, or dispute these obligations, we remain liable to pay the claims of our policyholders. At December 31, 2007, we had a total of $64.2 million due us from reinsurers, including $56.4 million of recoverables from losses and $7.8 million in prepaid reinsurance premiums. The largest amount due us from a single reinsurer was $16.9 million, recoverable from General Reinsurance Corp. Moreover, at December 31, 2007, we had 10 reinsurers that owed us in excess of $1.0 million each and $60.1 million in the aggregate. If any of our reinsurers are unable or unwilling to pay amounts they owe us in a timely fashion, we could suffer a significant loss or a shortage of liquidity, which would have a material adverse effect on our business and results of operations.

As of December 2007, we maintained reinsurance coverage from approximately 57 reinsurers. In the past, depending upon the type of coverage and line of business, it has generally taken us between one and two months to replace reinsurance coverage upon the cancellation or expiration of existing coverage. In order to replace existing reinsurance coverage, we first identify possible alternative reinsurers to provide us with the coverage we require. We do this either through our reinsurance broker or through our contacts in the direct reinsurance market, as well as independent research. Once alternative reinsurers have been identified, we allow them to perform due diligence on our relevant insurance business. Upon completion of this due diligence process, we negotiate the terms of the applicable reinsurance coverage with the selected reinsurer. We believe that, in the future, it would take at least the same amount of time to identify alternative providers of reinsurance coverage, allow them to perform the necessary diligence regarding our insurance business, and negotiate the terms of the applicable coverage as it has in the past. If we are unwilling to increase our risk exposure or seek to reduce the amount of risk we underwrite, we may be required to pay substantially greater premiums to obtain the desired reinsurance coverage. These increased premiums could, in turn, adversely impact our profitability. Alternatively, if we were to increase our risk exposure in an effort to reduce our reinsurance coverage costs, our results of operations and financial condition could be materially and adversely affected as a result of having to pay greater losses on claims.

We depend upon our network of independent agents for revenues and market opportunities, and our business may not continue to grow and may be materially and adversely affected if we cannot retain existing and attract new independent agents.

Our network of independent agents accounts for a significant portion of the gross premiums on insurance policies that we write and constitutes our primary distribution channel for our products. In addition, we have developed several successful products based on referrals from our independent agents of new specialty market opportunities. As a result, our business depends heavily on the efforts of our independent agents and on our ability to offer products that meet the needs of our independent agents and their customers, and the continued growth of our business will depend materially upon our ability to retain existing and attract new independent agents.

Independent agents are not obligated to market or sell our insurance products or consult with us. Because many of our competitors also rely significantly on independent agents, we must compete for the business and goodwill of our independent agents. Competitors may offer a larger variety of products, lower prices for insurance coverage and higher commissions to independent agents. Accordingly, we may be unable to continue to attract and retain independent agents to market and sell our products and otherwise work with us. A material reduction in the amount of business that our independent agents sell for us would materially and adversely affect our results of operations. The failure for any reason of our independent agents to refer new market opportunities to us could adversely affect our growth.

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Our failure to pay claims accurately could adversely affect our business, results of operations and capital.

We must accurately evaluate and pay claims made under our policies. Many factors affect our ability to pay claims accurately, including the training and experience of our in-house claims representatives, the culture of our claims handling group, the effectiveness of our management and our development or selection and implementation of appropriate procedures and systems to support our claims handling functions. Our failure to pay claims accurately could lead to material litigation, undermine our reputation in the marketplace and, as a result, adversely affect our results of operations and capital. Our failure to hire and train new claims handling employees effectively or our loss of a significant number of experienced claims handling employees could have adverse effects on our ability to handle an increasing claims workload as we grow, thereby hindering our ability to profitably expand our business. In addition, we could suffer decreased quality of claims handling, which in turn could negatively impact our results of operations.

Implementation of our growth strategies is subject to numerous risks and difficulties.

Our growth strategies include writing more premium in our existing markets, expanding existing product lines and programs into new markets, developing new products and programs for our agents and engaging in complementary acquisitions. Our implementation of these strategies is subject to various risks, including risks associated with our ability to:

•  identify, recruit and integrate new independent agents;

•  properly design and price new and existing products and programs;

•  identify profitable new geographic markets and product lines to enter;

•  obtain necessary licenses;

•  identify acquisition candidates and successfully execute and integrate acquisitions we undertake; and

•  identify, hire and train new underwriting and claims handling employees.

We may encounter other difficulties in the implementation of our growth strategies, including unanticipated expenditures and damaged or lost relationships with customers and independent agents. In addition, our growth strategies may require us to enter into a geographic or business market in which we have little or no prior experience. Any such difficulties could result in excessive diversion of senior management time and adversely affect our financial results.

Further, any acquisitions that we pursue may require significant capital outlays and will require the consent of the lenders under our senior credit facility. If we issue equity or convertible debt securities to pay for an acquisition, these securities may have rights, preferences or privileges senior to those of our common shareholders or the issuance may be dilutive to our existing shareholders. Once an acquisition is made, we could suffer increased costs, disruption of our business and distraction of our management while we integrate the acquired business into our operations. Any failure by us to manage our growth and to respond to changes in our business could have a material adverse effect on our business and profitability and could cause the price of our common stock to decline.

Assessments and other surcharges for guaranty funds and mandatory reinsurance arrangements may reduce our profitability.

Virtually all states require insurers licensed to do business therein to bear a portion of the unfunded obligations of impaired or insolvent insurance companies. These obligations are funded by assessments, which are levied by guaranty associations within the state, up to prescribed limits, on all member insurers in the state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired, insolvent or failed insurer was engaged. Accordingly, the assessments levied on us by the states in which we are licensed to write insurance may increase as we increase our premiums written. In addition, as a condition to the ability to conduct business in Florida, insurance companies are required to participate in Florida’s mandatory reinsurance fund, FHCF. We are also subject to assessments from Citizens and FIGA in Florida and SCIGA in South Carolina. The effect of these assessments and mandatory reinsurance arrangements, or changes in them, could

28

reduce our profitability in any given period or limit our ability to grow our business. In 2007, we incurred $551,000 of after-tax expenses, attributable to FIGA and SCIGA assessments. See “Business — Regulatory Environment — Membership in Insolvency Funds and Associations; Mandatory Pools and Insurance Entities,” incorporated elsewhere in this Annual Report on Form 10-K.

Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims that we incur.

All of our property insurance business is exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as hurricanes, winter weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms and fires and other events such as explosions, terrorist attacks and riots. For example, we incurred $1.1 million of after-tax loss and loss adjustment expenses relating to Mid-West storm activity in 2006.

The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable. Severe weather conditions and catastrophes can cause losses in all of our property lines and generally result in both an increase in the number of claims incurred and an increase in the dollar amount of each claim asserted, which might require us to increase our reserves and cause our liquidity and financial condition to deteriorate.

Our business is cyclical, which affects our financial performance and may affect the market price of our common stock.

The financial performance of the property and casualty insurance industry historically has been cyclical in nature, characterized by periods of severe price competition and excess underwriting capacity, or soft markets, followed by periods of high premium rates and shortages of underwriting capacity, or hard markets. Although an individual insurance company’s financial performance is dependent on its own specific business characteristics, the profitability of most property and casualty insurance companies tends to follow this cyclical market pattern. This cyclicality is due in large part to the actions of our competitors and to general economic factors that are not within our control, and therefore we cannot predict how long any given hard or soft market will last. If we find it necessary to reduce premiums or limit premium increases due to competitive pressures on pricing in a softening market, we may experience a reduction in our premiums written and in our profit margins and revenues, which could adversely affect our financial results.

Our business is seasonal, which affects our financial performance and may affect the market price of our common stock.

Our business has historically been seasonal. We generally experience higher losses in our personal lines insurance segment, namely homeowners insurance, during the first quarter of the year as a result of an increase in claims due to winter weather conditions in the Midwestern states in which we do business. For example, winter weather may cause property damage that impacts claim incidence and severity. The recurrence of these seasonal patterns, or any deviation from them, could affect the market price of our common stock.

Intense competition could adversely affect our results of operations.

Our markets are highly competitive and, except for regulatory considerations, there are few barriers to entry. Our insurance companies compete with other insurance companies that sell commercial and personal insurance policies through independent agents as well as with insurance companies that sell policies directly to their customers. Our competitors include not only large national insurance companies, but also small regional companies. Some of our competitors have higher financial strength ratings and greater resources than we have and offer a wider array of products and services or competing products and services at lower prices. In addition, existing competitors may attempt to increase market share by lowering rates. In that case, we could experience reductions in our underwriting margins, or sales of our insurance policies could decline as customers purchase lower-priced products from our competitors. Losing business to competitors offering similar products at lower prices, or having other competitive advantages, would adversely affect our results of operations.

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If we lose key personnel or are unable to recruit additional qualified personnel, our ability to implement our growth strategies could be hindered.

Our success depends in part upon the continued services of our senior management team, particularly our Chairman, Chief Executive Officer and President, James G. Petcoff, our Chief Operating Officer and Executive Vice President, B. Matthew Petcoff, and our Chief Financial Officer and Senior Vice President-Finance, Brian J. Roney. We have entered into employment agreements with James G. Petcoff, B. Matthew Petcoff, and Brian J. Roney. As of December 31, 2007, we also had key-person life insurance on James G. Petcoff having a face value of $6.0 million. We do not have employment agreements with any other executive officers or employees. The loss of any of our executive officers or other key personnel, or our inability to recruit and retain additional qualified personnel as we grow, could materially and adversely affect our business and results of operations and could prevent us from fully implementing our growth strategies.

The success of certain of our product lines, including our bowling center insurance product line, depends upon our receipt of trade association endorsements, and we may not be able to retain existing endorsements or secure new endorsements.

Our marketing efforts and the growth of certain of our lines of business depend to a significant extent upon our receipt of trade association endorsements. For example, our early success in selling property, general liability and liquor liability insurance policies to owner-operated bowling centers in Michigan was attributable, in large part, to our endorsement by the Bowling Centers Association of Michigan. The subsequent expansion of our bowling program into other states has been facilitated by similar trade association endorsements in those states. In addition, our liquor liability insurance product line has benefited from our endorsement by the Associated Food Dealers of Michigan. Although we pay marketing fees in connection with these endorsements, we have no long-term contractual rights to any endorsements, and we cannot assure that we will be able to maintain these endorsements. In addition, we cannot predict whether a particular trade association in a state into which we might seek to expand would grant us any similar endorsement (whether exclusive or non-exclusive). The loss of one or more of our existing endorsements or our failure to obtain additional endorsements could hinder our marketing efforts and limit our ability to compete with other insurance providers.

As a holding company, we depend on payments from our subsidiaries to satisfy our financial obligations.

We are organized as a holding company, a legal entity separate and distinct from our operating subsidiaries. As a holding company without significant operations of our own, we depend upon dividends and other payments from our subsidiaries. We cannot meet our financial obligations unless we receive payments from our subsidiaries, including our insurance company subsidiaries. In addition, the payment of future cash dividends, if any, by us to our shareholders will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, future prospects, regulatory and contractual restrictions on the payment of dividends by us and our subsidiaries (including those contained in our senior credit facility) and other factors deemed relevant by our board of directors.

Our insurance company subsidiaries are subject to regulatory and other restrictions limiting their ability to pay dividends to us.

State insurance laws limit the ability of our insurance company subsidiaries to pay dividends to us and require our insurance company subsidiaries to maintain specified minimum levels of statutory capital and surplus. In addition, for competitive reasons, our insurance companies need to maintain financial strength ratings, which in turn require us to maintain certain levels of capital and surplus in those subsidiaries. The need to maintain capital and surplus levels may affect the ability of our insurance company subsidiaries to pay dividends to us. Without regulatory approval, the aggregate maximum amount of dividends that could be paid to us in 2008 by our insurance company subsidiaries is approximately $3.9 million.

The aggregate maximum amount of dividends permitted by law to be paid by an insurance company does not necessarily define an insurance company’s actual ability to pay dividends. The actual ability to pay dividends may be further constrained by business and regulatory considerations, such as the impact of dividends on surplus, which

30

could affect the ratings of our insurance company subsidiaries, our competitive position, and the amount of premiums that we can write. State insurance regulators have broad discretion to limit the payment of dividends by insurance companies, and our right to participate in any distribution of assets of one of our insurance company subsidiaries is subject to prior claims of policyholders and creditors except to the extent that our rights, if any, as a creditor are recognized. As a result, a prolonged, significant decline in the profits of our insurance company subsidiaries or regulatory action limiting dividends could subject us to shortages of cash because our insurance company subsidiaries would not be able to pay us dividends. We also rely on service contracts entered into with or between our non-insurance company subsidiaries and our insurance company subsidiaries, and to the extent that the amounts charged under these contracts are modified by the applicable insurance regulatory authority, less cash may be available to us.

We are subject to other state laws and regulations that impose additional administrative burdens and risks that may also affect our ability to earn profits.

In addition to the foregoing discussion of state regulations posing particular risks to our profitability, our insurance company subsidiaries and their affiliates are subject to other state laws and regulations in the states where they do business. These regulations involve, among other things:

•  the use of non-public consumer information and related privacy issues;

•  the use of credit history in underwriting and rating;

•  limitations on the ability to charge policy fees;

•  limitations on types and amounts of investments;

•  the payment of dividends;

•  the acquisition or disposition of an insurance company or of any company controlling an insurance company;

•  involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting associations, assessments and other governmental charges;

•  reporting with respect to financial condition;

•  periodic financial and market conduct examinations performed by state insurance department examiners; and

•  with respect to our premium finance business, the federal Truth-in-Lending Act and similar state statutes. In states where premium finance statutes have not been enacted, we generally are subject to state usury laws that are applicable to consumer loans. State usury laws may limit the amount of interest we are allowed to charge our premium finance customers in these states.

These other state laws and regulations also pose administrative burdens and risks upon our operations that could similarly affect our profitability. See “Business — Regulatory Environment.”

Our insurance company subsidiaries, our premium finance subsidiary and our captive reinsurance subsidiary are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

Our insurance companies are subject to risk-based capital standards and other minimum capital and surplus requirements imposed by state laws, including the laws of their states of domicile (Michigan, Florida, and South Carolina). The risk-based capital standards, or RBC standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require our insurance company subsidiaries to report their results of RBC calculations to state insurance departments and the NAIC. These RBC standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its authorized control level RBC limits. In addition, our premium finance subsidiary is subject to minimum capital requirements imposed under the laws of

31

some of the states in which it conducts business, and our captive reinsurance subsidiary is subject to minimum capital and surplus requirements under the laws of the District of Columbia.

Any failure to meet applicable RBC requirements or minimum statutory capital requirements could subject our insurance companies or our premium finance subsidiary to further examination or corrective action by state regulators, including limitations on our writing of additional business or engaging in finance activities, state supervision or liquidation. Any changes in existing RBC requirements or minimum statutory capital requirements may require us to increase our statutory capital levels, which we might be unable to do.

The outcome of current industry investigations and regulatory proposals could adversely affect our financial condition and results of operations.

The insurance industry has recently become the focus of increased scrutiny by regulatory and law enforcement authorities, as well as class action attorneys and the general public, relating to allegations of improper special payments, price-fixing, bid-rigging, improper accounting practices and other alleged misconduct, including payments made by insurers to brokers and the practices surrounding the placement of insurance business. Formal and informal inquiries have been made of a large segment of the industry, and a large number of companies in the industry have received or may receive subpoenas, requests for information from regulatory authorities or other inquiries relating to these and similar matters. These efforts are expected to result in both enforcement actions and proposals for new state and federal regulation. In addition, a number of class action lawsuits have been filed against insurance companies, brokers and other insurance industry participants. It is difficult to predict the outcome of these investigations and proceedings, whether they will expand into other areas not yet contemplated, whether activities and practices currently thought to be lawful will be characterized as unlawful, what form new regulations will have when finally adopted, or the impact, if any, of this increased regulatory and law enforcement action and litigation with respect to the insurance industry on our business and financial condition.

We may be subject to risks associated with our continued use of contingent commission arrangements with independent agents.

We utilize contingent commission arrangements with certain of our independent agents that obligate us to pay contingent commissions to these agents based on the profitability of the insurance business written through such agents. We expensed $553,000, $388,000 and $224,000 in the years ended December 31, 2007, 2006 and 2005, respectively, relating to such contingent commission payments. Certain regulatory officials have recently questioned the use of certain contingent commission arrangements, primarily alleging that they may be improper if not adequately disclosed to consumers. The NAIC has adopted model legislation that would require greater disclosure of these arrangements by certain insurance agents and brokers, and several state regulators continue to investigate the use of these arrangements throughout the insurance industry.

The adoption of regulations prohibiting the use of contingent commission arrangements or requiring greater disclosure of such arrangements could adversely affect our business by, among other things, requiring us to implement less economically attractive methods of compensating our independent agents, requiring us to monitor our independent agents’ compliance with applicable disclosure requirements and potentially subjecting us to regulatory action or other liability for their failure to so comply.

We rely on our information technology and telecommunications systems, and the failure or disruption of these systems could disrupt our operations and adversely affect our results of operations.

Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and telecommunications systems. We rely on these systems to process new and renewal business, provide customer service, make claims payments and facilitate collections and cancellations, as well as to perform actuarial and other analytical functions necessary for pricing and product development. Our hardware systems (servers, communications equipment, etc.) could be disrupted by factors such as natural disasters, power disruptions or surges, terrorist attacks or individual mechanical failures. Such failures could result is wide-spread outages, resulting in business interruption and adversely affect our operations. Our software (application systems and/or

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operating systems) could experience a failure or error caused by computer hackers or an internal control breakdown, either of which could degrade or disrupt service to our business units and affect our results.

Our failure to implement and maintain adequate internal controls in our business could have a material adverse effect on our business, financial condition, results of operations and stock price.

Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting . If we fail to achieve and maintain the adequacy of our internal controls in accordance with applicable standards as then in effect and as supplemented or amended from time to time, we may be unable to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Moreover, effective internal controls are necessary for us to produce reliable financial reports. If we cannot produce reliable financial reports or otherwise maintain appropriate internal controls, our business, financial condition and results of operations could be harmed, investors could lose confidence in our reported financial information, the market price for our stock could decline significantly and we may be unable to obtain additional financing to operate and expand our business. See Item 9A — “Controls and Procedures,” incorporated elsewhere within this Annual Report on Form 10-K.

Employees

At December 31, 2007, we had 379 employees. None of our employees is covered by any collective bargaining agreements.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are also accessible on the SEC’s website at www.sec.gov. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 101 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We voluntarily make electronic or paper copies available, free of charge, of all reports we file with, or furnish to, the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC, through our website at http://www.npte.com/ or upon written request to our Investor Relations Department at 28819 Franklin Road, Southfield, Michigan 48034 or through contact with Danielle Mercurio at (248) 358-1171.

Item 1B.   UNRESOLVED STAFF COMMENTS

None.

Item 2.   PROPERTIES.

Our home office is located in Southfield, Michigan, where we occupy approximately 30,000 square feet of office space for use in all of our business segments. We lease 14,816 square feet of office space in Jacksonville, Florida for use in our specialty commercial lines business segment. This lease expires in June 2010. We lease nearly 13,000 square feet of office space in Lombard, Illinois, all of which was sublet to unrelated third parties when we closed our Chicago operation in April 2003. We also lease space for small offices in East Lansing, Michigan; Coral Gables, Florida (opened September 2006); and Wilmette, Illinois, all of which are used in our specialty commercial lines business segment. During 2006, we closed the Cooper City, Florida office, which was used in our homeowners insurance business. In January 2007, we opened an office in Sacramento, California where we occupy approximately 3,091 square feet for use in our personal lines business.

The primary offices for the Capital City companies, which were acquired in July 2007, are located in Columbia, South Carolina. We lease two buildings with approximately 20,000 square feet of office space each. Both of these leases expire in 2010. In addition to the properties described above, we lease additional space throughout the Southeastern United States for our agency and insurance company operations.

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As of December 31, 2007, we believe all of our facilities are suitable and adequate for use.

Item 3.   LEGAL PROCEEDINGS.

As of December 31, 2007, we were not a party to any pending legal proceedings other than in the ordinary course of defending claims asserted against our policyholders, none of which, if decided adversely to us, would, in the opinion of management, have a material adverse effect on our business or financial position.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

The common stock of North Pointe Holdings Corporation is listed and traded on the Nasdaq Stock Market (Symbol: NPTE), where our common stock began trading on September 23, 2005. Prior to such date, there was no established public trading market for our common shares. As of February 28, 2008 the 8,919,329 outstanding shares of Common Stock were held by 19 holders of record. The closing price per share of the Common Stock on the Nasdaq Stock Market on March 20, 2008 was $15.69.

The following table presents the range of share prices for each quarter of 2007 and 2006:

	2007				2006
Quarter Ended	High		Low		High		Low
March 31	$	12.94	$	9.94	$	15.83	$	11.00
June 30		12.34		9.87		13.55		6.73
September 30		12.05		9.00		9.51		6.33
December 31		11.50		9.50		10.81		8.90

We have not declared or paid any dividends since our shares began to trade publicly on September 23, 2005 nor do we expect to pay dividends in the foreseeable future. In order to pay dividends, we would need to receive funds from our insurance subsidiaries. Our senior debt facility restricts the payment of dividends to our shareholders without their prior consent. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Constraints and Outstanding Debt. Our agreement and plan of merger with QBE also restricts our ability to pay dividends.

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In August 2006, our Board of Directors authorized the repurchase of up to $5.0 million of the Company’s outstanding common stock. Under this program, repurchases may be made from time to time in the open market at prevailing market prices or through privately negotiated transactions in accordance with the Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase program has a twenty-four month time limit, and the timing and actual number of shares to be repurchased will depend on a variety of factors, including corporate and regulatory requirements, price, and other market conditions. In 2007, we repurchased a total of 209,358 shares.

					Total
					Number of		Approximate Dollar
					Shares Purchased		Value of Shares
	Total Number				as part of Publicly		That May Yet be
	of Shares		Price Paid		Announced		Purchased Under
Date	Repurchased		per Share		Program		the Program
June 30, 2007		200,000	$	10.16		200,000	$	2,968,000
August 23, 2007		879		9.45		879		2,959,692
August 24, 2007		879		9.50		879		2,951,341
August 27, 2007		1,000		9.70		1,000		2,941,643
August 28, 2007		1,600		9.97		1,600		2,925,691
August 29, 2007		1,600		10.01		1,600		2,909,675
August 31, 2007		600		10.15		600		2,903,585
September 6, 2007		2,800		10.26		2,800		2,874,857

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Item 6.   SELECTED FINANCIAL DATA.

The following table summarizes our consolidated financial information for the periods indicated.

The information as of December 31, 2007, 2006, 2005, 2004, and 2003 and for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 was derived from our audited consolidated financial statements.

Our audited consolidated financial statements as of December 31, 2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005 are incorporated elsewhere in this Annual Report on Form 10-K.

North Pointe Holdings Corporation
Five Year Selected Financial Data

	As of and for the Years Ended December 31,
	2007		2006			2005			2004		2003
	(Dollars in thousands, except per share and ratio data)
Statements of Operations Data:
Revenues:
Direct premiums written	$	115,666	$	90,175		$	110,409		$	94,548	$	88,036
Assumed premiums written		3,658		10			613			1,913		167
Gross premiums written		119,324		90,185			111,022			96,461		88,203
Net premiums written		107,408		61,127			86,079			80,493		76,224
Net premiums earned	$	94,179	$	66,651		$	84,709		$	76,957	$	68,740
Investment income, net of investment expenses		8,676		5,731			3,865			2,377		2,174
Net realized capital gains (losses)		3,320		(214	)		(168	)		886		1,264
Other income		6,649		1,369			1,901			2,222		2,047
Gains on sales of businesses(1)		—		—			—			4,285		200
Total revenues		112,824		73,537			90,307			86,727		74,425
Expenses:
Loss and loss adjustment expenses, net		53,548		30,874			43,971			41,503		33,141
Policy acquisition costs		21,663		19,036			21,776			18,687		17,409
Other underwriting and operating expenses		27,981		21,781			17,812			13,730		13,159
Interest expense		3,261		1,711			959			763		422
Total expenses		106,453		73,402			84,518			74,683		64,131
Income from continuing operations before federal income tax expense and extraordinary items		6,371		135			5,789			12,044		10,294
Federal income tax expense		1,755		10			1,997			3,516		3,725
Income from continuing operations before extraordinary items		4,616		125			3,792			8,528		6,569
Extraordinary items(2)		—		—			—			2,905		—
Income from continuing operations		4,616		125			3,792			11,433		6,569
Discontinued operations (Note 3) Income from operations of discontinued subsidiary		8,632		6,891			88			—		—
Federal income tax expense		2,923		2,340			30			—		—
Income from discontinued operations		5,709		4,551			58			—		—
Net income	$	10,325	$	4,676		$	3,850		$	11,433	$	6,569

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	As of and for the Years Ended December 31,
	2007			2006			2005			2004			2003
	(Dollars in thousands, except per share and ratio data)
Earnings Per Share Data:
Basic
Income from continuing operations before extraordinary items and discontinued operations	$	0.51		$	0.01		$	0.63		$	1.50		$	1.16
Income from discontinued operations		0.63			0.50			0.01			0.57			—
Net income		1.14			0.51			0.64			2.07			1.16
Diluted
Income from continuing operations before extraordinary items	$	0.51		$	0.01		$	0.63		$	1.46		$	0.90
Income from discontinued operations		0.63			0.50			0.01			0.49			—
Net income		1.14			0.51			0.64			1.95			0.90
Balance Sheet Data:
Cash and investments	$	271,903		$	165,837		$	142,691		$	115,026		$	98,115
Assets of discontinued operations		14,276			—			—			—			—
Total assets		431,067			257,577			275,036			205,079			165,433
Losses and loss adjustment expenses		172,264			89,755			117,778			96,561			76,319
Debt		54,287			23,131			5,026			20,062			10,848
Liabilities of discontinued operations		8,285			—			—			—			—
Total liabilities		332,813			169,342			192,809			170,387			137,340
Redeemable preferred stock		—			—			—			—			2,000
Shareholders’ equity		98,254			88,235			82,227			34,692			26,093
Combined statutory capital and surplus(3)		100,502			91,009			69,736			47,900			29,706
Book value per share(4)	$	11.02		$	9.67		$	9.02		$	7.10		$	5.01
Key Financial Ratios:
Loss ratio(5)		53.1	%		45.4	%		50.8	%		52.4	%		46.8	%
Expense ratio(6)		49.2	%		60.0	%		45.7	%		41.0	%		43.2	%
Combined ratio(7)		102.3	%		105.4	%		96.5	%		93.4	%		90.0	%

(1)	The gains on sales of businesses in 2004 was generated by a $4.0 million gain on the sale of the renewal policy rights relating to our non-standard personal automobile insurance line and a $285,000 gain on the sale of our renewal rights relating to approximately 100 liquor liability policies. The $200,000 gain on sales of businesses in 2003 was generated by a gain on the sale of Universal Fire & Casualty.
(2)	Extraordinary items reflect income generated through the recognition of negative goodwill resulting from acquisitions of companies purchased for less than the aggregate fair value of their net assets. We acquired Queensway International (subsequently renamed North Pointe Casualty Insurance Company) on February 28, 2004 for $11.0 million, resulting in an extraordinary gain of $2.9 million.
(3)	In 2007, North Pointe Insurance, North Pointe Casualty, Capital City Insurance and Midfield contributed $5.0 million, $1.0 million, $3.0 million and $3.0 million, respectively, to their parent. These contributions were made to facilitate the Capital City acquisition and to pay down outstanding debt. As of December 31, 2007, combined statutory capital and surplus included $36.1 million for Capital City Insurance which was acquired in July 2007 but did not include the capital and surplus of Home Pointe Insurance which was classified as discontinued operations for the year.
	In 2006, we contributed a total of $9.0 million to our insurance company subsidiaries. $5.0 million was contributed to North Pointe Casualty and $4.0 million was contributed to Home Pointe Insurance.
	In 2005, we contributed a total of $24.9 million into our insurance company subsidiaries, net of dividends received, of which $6.8 million, $5.6 million, $7.5 million and $5.0 million was contributed to North Pointe

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	Insurance, North Pointe Casualty, Home Pointe Insurance and Midfield, respectively. These contributions were funded from initial public offering proceeds, holding company funds and new debt.
	As of December 31, 2004, combined statutory capital and surplus included $15.0 million for North Pointe Casualty, which was acquired in February 2004 utilizing a combination of holding company funds and new debt.
(4)	Book value per share equals the quotient obtained by dividing shareholders’ equity by the number of shares of common stock outstanding.
(5)	Loss ratio is the ratio (expressed as a percentage) of losses and loss adjustment expenses incurred divided by the sum of net premiums earned, installment fees and other income.
(6)	Expense ratio is the ratio (expressed as a percentage) of commissions and operating expenses divided by the sum of net premiums earned, installment fees and other income.
(7)	Combined ratio is the sum of the loss ratio and the expense ratio.

Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

The discussion and analysis of our financial condition and results of operations contained herein should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Please see “Note on Forward-Looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report.

Note on Forward-Looking Statements

Some of the statements contained herein are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Whenever used in this report, the words “estimate”, “expect”, “believe” or similar expressions are intended to identify such forward-looking statements. Forward-looking statements are derived from information that the Company (also referred to herein as “we,” “us” and “our”) currently has and assumptions that we make. We cannot assure that anticipated results will be achieved, since results may differ materially because of both known and unknown risks and uncertainties which we face. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from our forward-looking statements include, but are not limited to:

•  the availability and pricing of reinsurance and the potential for non-payment or delay in payment by reinsurers;

•  our ability to accurately price the risks we underwrite;

•  the impact of the current credit crisis on our investment portfolio, level of investment income, and level of impairment;

•  the inability to successfully integrate the Capital City entities could have a negative effect on our expenses and results of operations;

•  the establishment of adequate loss and loss adjustment expense reserves;

•  possible assessments for guaranty funds, other insurance-related assessments and mandatory reinsurance arrangements and our ability to recover such assessments through future surcharges or other rate changes;

•  retention and recruiting of independent agents and the potential loss of key personnel;

•  failure to pay claims accurately;

•  risks associated with high concentration of our business in certain geographic markets;

•  inability to implement our growth strategies;

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•  the occurrence of severe weather conditions and other catastrophes;

•  the cyclical and seasonal nature of the industries within which we operate;

•  intense competition with other insurance companies;

•  our ability to obtain and retain trade association endorsements;

•  performance of our various operating subsidiaries and restrictions that may limit the ability of our subsidiaries to pay dividends to North Pointe Holdings;

•  existing and future regulations by the local, state and federal governments;

•  the compliance of our insurance company subsidiaries with minimum capital and surplus requirements;

•  ratings of our insurance company subsidiaries by A.M. Best;

•  the outcome of current industry investigations and potential regulation limiting the use of undisclosed contingent commission arrangements with independent agents;

•  adverse market conditions that could negatively impact our investment portfolio;

•  reliance on information technology and telecommunication systems;

•  our limited history writing homeowners insurance policies to homeowners in Florida;

•  changes in insurance-related laws and regulations;

•  our ability to implement and maintain adequate internal controls in our business; and

•  other risks that we identify in past and future filings with the Securities and Exchange Commission, including without limitation the risks described herein, and in future filings, under the caption “Risk Factors.”

In light of these risks, uncertainties and assumptions, any forward-looking events discussed in this Annual Report on Form 10-K may not occur. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of their respective dates.

Overview

North Pointe Holdings is an insurance holding company whose insurance company subsidiaries market and service specialty commercial and personal insurance products. We also have non-insurance company subsidiaries that provide administrative, agency and premium finance services.

Our revenues are principally derived from premiums earned from our insurance operations. Other revenues are primarily generated through investment income and fees associated with our personal and commercial policies. Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions and other underwriting and administrative expenses. We report consolidated financial information in four business segments: commercial lines insurance, personal lines insurance, administrative services and agency services.

Net income from continuing operations for the years ended December 31, 2007, 2006 and 2005 was $4.6 million, $125,000, and $3.8 million, respectively, resulting in diluted earnings per share from continuing operations of $0.51, $0.01 and $0.63, respectively. Net income from discontinued operations for the years ended December 31, 2007, 2006 and 2005 was $5.7 million, $4.6 million and $58,000, respectively, resulting in diluted earnings per share of $0.63, $0.50 and $0.01, respectively.

The $4.5 million increase in net income from continuing operations for the year ended December 31, 2007 was primarily attributable to a $27.5 million increase in net premiums earned ($22.2 million attributable to Capital City) and $5.3 million increase in fees and other income ($5.2 million attributable to Capital City). Theses increases were offset by a $22.7 million increase in loss and loss adjustment expenses ($13.2 million attributable to Capital City) and a $6.2 million increase in other underwriting and operating expenses ($8.1 million attributable to Capital City).

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Our loss ratios from continuing operations for the years 2007, 2006, and 2005 were 53.1%, 45.4% and 50.8%, respectively. The loss ratio from continuing operations for the commercial lines in 2007 was 58.1% compared to 39.9% for 2006. The increase in the loss ratio from continuing operations is primarily the result of the Capital City Insurance acquisition. Loss ratios for Capital City have been traditionally higher than those reported historically by North Pointe. The higher loss ratio produced by Capital City is a significant factor in the increase in the overall loss ratio from continuing operations. The loss ratio from continuing operations for North Pointe’s personal lines for 2007 was 37.7 as compared to 99.0% for 2006. This decrease was primarily attributable to favorable reserve development in the personal automobile lines and homeowners lines.

The $3.7 decrease in net income for the year ended December 31, 2006 was primarily attributable to a $18.1 million decrease in net premiums earned, partially offset by a $13.1 million decrease in net loss and loss adjustment expenses and a $2.7 million decrease in policy acquisition costs.

The decrease in net premiums earned primarily resulted from cancellations and non-renewals in our commercial lines segment and increased reinsurance costs. The cancellations and non-renewals were the result of our prompt reduction of our wind exposure in Florida when it became evident that we could not obtain catastrophe reinsurance coverage for the 2006 hurricane season. We made the decision to reduce our exposure in early June, which was substantially implemented by July 2006 by the cancellation or non-renewal of all policies included in specific classes within our Florida small business line. This reduced total annualized gross premiums written in our Florida small business line by approximately $18.0 million, or 40.0%, and total insurable value with wind exposure by approximately 75.0%.

Net income for 2005 includes after-tax expenses of $9.8 million attributable to four hurricanes which struck Florida and the U.S. Gulf coast in 2005, $539,000 of after-tax expenses attributable to statutory assessments from Citizens and $115,000 of after-tax expenses attributable to reserve adjustments relating to the 2004 hurricane losses. Of the $9.8 million of after-tax expenses attributable to hurricanes in 2005, $1.6 million, $1.9 million, $196,000 and $6.1 million were attributable to Hurricanes Dennis, Katrina, Rita and Wilma, respectively.

In October 2007, the Company signed an agreement to sell Home Pointe Insurance. On January 23, 2008, the Company through its wholly owned subsidiary, North Pointe Financial, completed the sale of Home Pointe Insurance to American Capital Assurance Corp., a subsidiary of Safe Harbour Holdings, LLC, a Florida domiciled insurance holding company. Home Pointe conducted all of the Company’s Florida homeowners and dwelling fire operations in 2007.

In December 2006, A.M. Best upgraded North Pointe Insurance’s financial strength rating from “B++” to “A−.” Simultaneously, A.M. Best reaffirmed North Pointe Casualty’s financial strength rating of “B+,” and upgraded the issuer credit rating of North Pointe Holdings to “bb+” from “bb”.

In August 2006, our Board of Directors authorized the repurchase of up to $5.0 million of the Company’s outstanding common stock. The repurchase program has a twenty-four month time limit, and the timing and actual number of shares to be repurchased will depend on a variety of factors, including corporate and regulatory requirements, price, and other market conditions. During the year ended December 31, 2006, we did not repurchase any shares under the program.

In June 2006, we entered into a Second Amended and Restated Credit Agreement which replaced a previous Amended Credit Agreement. The Credit Agreement provides for a revolving credit line in the aggregate amount of $25.0 million.

In February 2006, we issued $20.0 million of 30-year, mandatorily redeemable trust preferred securities (the “Trust Preferreds”) through a newly formed, unconsolidated wholly-owned subsidiary, NP Capital Trust I (the “Trust”).

Critical Accounting Estimates

We prepare our financial statements in conformity with generally accepted accounting principles in the United States of America, or GAAP. Under GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements. As additional information becomes available, these estimates and assumptions can change and impact amounts reported in the future. We have identified below accounting policies that we use to

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make these estimates and assumptions. We consider these policies to be critical due to the amount of judgment and uncertainty inherent in their application.

Estimation of Unpaid Loss and Loss Adjustment Expense Reserves

Unpaid loss and loss adjustment expense reserves represent our best estimate of the ultimate liability for losses and loss adjustment expenses that occurred prior to, but were unpaid at, the end of any given accounting period. At December 31, 2007 and 2006, we had $172.3 million and $89.8 million, respectively, of gross loss and loss adjustment expense reserves. Evaluation of these gross reserves requires the estimation of loss development over an extended period of time. Numerous factors will affect the ultimate settlement values of claims, including tort reform, expected future inflationary trends, medical costs and jury awards. These factors, coupled with the character of the business we write (much of which is small volume specialty commercial lines), continual changes in the mix of business we write, as well as ongoing rate and underwriting modifications, require that significant judgment be used in the reserve setting process. Changes in our mix of business, among other less substantial changes, create additional uncertainty in estimating the ultimate loss costs.

Due either to insufficient experience or volume in a particular line of business, we are often required to consider industry loss ratios for establishing credible loss ratio expectations. However, industry loss ratios have tended to run higher than our historical experience partly due to the fact that available industry statistics generally include risks which we do not cover, such as environmental and asbestos liabilities, or they are not specific enough to our particular specialty lines.

We review our reserves by product line, coverage and state on an annual, semiannual, or quarterly basis, depending on the size of the product line or emerging issues related to the coverage. We also identify and measure variances in trend by state, line of business and coverage that would not otherwise be seen on a consolidated basis.

Our analyses are critical not only for the purpose of establishing accurate financial reporting data but also for evaluating pricing and the effectiveness of various product lines or coverages.

We use actuarial methodologies to assist us in establishing these estimates, including estimates of the severity and frequency of future claims, the length of time to obtain an ultimate resolution, outcomes of litigation and other third-party factors that are often beyond our control. Due to the inherent uncertainty associated with the cost of unsettled and unreported claims, our ultimate liability may differ from our original estimate. Our reserve estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. See “Results of Operations — Losses and Loss Adjustment Expenses,” “Business — Unpaid Losses and Loss Adjustment Expenses,” and Note 9 to our consolidated financial statements, all of which are included elsewhere in this annual report on Form 10-K.

Federal Income Tax Expense

We provide for federal incomes taxes based on amounts we believe we will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realizations of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, we may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements.

In July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) which is effective for fiscal years beginning after December 15, 2006. This Interpretation clarifies the uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes (“SFAS 109”). FIN No. 48 requires that we evaluate our tax positions within the scope of SFAS 109 in each tax jurisdiction for all open tax years and determine whether our tax positions are more-likely-than-not of being sustained based solely on technical merits. FIN No. 48 then requires that we measure the tax benefit or liability to be recognized and record an adjustment to income and retained earnings according to the Interpretation. We adopted FIN 48 on January 1, 2007.

Other-Than-Temporary Impairment of Investments

SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” and Staff Accounting Bulletin 59, “Noncurrent Marketable Equity Securities,” require companies to perform periodic reviews of

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individual securities in their investment portfolios to determine whether a decline in the value of a security is other than temporary. A review for other-than-temporary impairment (“OTTI”) requires companies to make certain forward-looking judgments regarding the materiality of the decline, its effect on the financial statements, and the probability, extent and timing of a valuation recovery, and the Company’s ability and intent to hold the security. The scope of this review is broad and requires a forward-looking assessment of the fundamental characteristics of a security, as well as market-related prospects of the issuer and its industry.

Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer, such as financial conditions, business prospects or other factors or (ii) market-related factors, such as interest rates or equity market declines. This evaluation reflects our assessments of current conditions, as well as predictions of uncertain future events, that may have a material impact on the financial statements related to security valuation.

Fixed-income investments with unrealized losses due to the market- or industry-related declines, are not deemed to qualify as other than temporarily impaired where we have the intent and ability to hold the investment for the period of time necessary to recover a significant portion of the investment’s original principal and interest obligation. Our policy for equity securities with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in a loss position for four consecutive quarters. This does not preclude us from recognizing an impairment prior to a security remaining in a loss position for four consecutive quarters if events or evidence would dictate an earlier recognition.

When persuasive evidence exists that causes us to evaluate a decline in market value to be other than temporary, we reduce the book value of such security to its current market value, recognizing the decline as a realized loss in the income statement. All other unrealized gains or losses are reflected as a change in shareholders’ equity. Since total unrealized losses are already a component of our shareholders’ equity, any recognition of additional other-than-temporary impairment losses would have no effect on our comprehensive income or book value.

As of December 31, 2007, we had unrealized losses on our investment portfolio of $1.2 million, of which $781,000 were in unrealized loss positions for more than twelve months. If we decided to write down all securities in an unrealized loss position for one year or longer, we would have recognized an additional $781,000 of realized losses, reducing net income in 2007 by $515,000.

See “Business — Investments,” and Note 6 to our audited consolidated financial statements, all of which are included elsewhere in this annual report on Form 10-K.

Fair Value of Net Assets Acquired

Significant judgment is required in determining the fair values of net assets acquired. In our evaluation of the fair values of the net assets acquired pursuant to the Capital City acquisition, we took into account a combination of factors, including the likelihood of recoveries on various assets, as well as the anticipated timing of recoveries. In the case of the investment portfolio securities, we utilized market values. In determining the fair value of unpaid losses and loss adjustment expenses we developed assumptions for the discounting of cash flows and estimates of risk loads a hypothetical arms-length buyer would require to assume such liabilities. Substantially all other assets and liabilities were short term in nature reducing the amount of judgment involved in determining estimated fair value. See Note 1 to our consolidated financial statements, included elsewhere in this annual report on Form 10-K.

Reinsurance Recoverables

Reinsurance recoverables represent (1) amounts currently due from reinsurers on paid losses and LAE, (2) amounts recoverable from reinsurers on case basis estimates of reported losses and LAE, and (3) amounts recoverable from reinsurers on actuarial estimates of IBNR losses and LAE. Such recoverables, by necessity, are based upon estimates. Reinsurance does not legally discharge us from our legal liability to our insureds, but it does make the assuming reinsurer liable to us to the extent of the reinsurance ceded. Instead of being netted against the appropriate liabilities, ceded unearned premiums and reinsurance recoverables on paid and unpaid losses and LAE are reported separately as assets in our consolidated balance sheets. Reinsurance recoverable balances are also subject to credit risk associated with the particular reinsurer. In our selection of reinsurers, we continually evaluate their financial stability. While we believe our reinsurance recoverables are collectible, the ultimate recoverable may

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be greater or less than the amount accrued. At December 31, 2007 and 2006, reinsurance recoverables on paid and unpaid losses and LAE and pre-paid reinsurance premiums were $64.2 million and $49.4 million, respectively.

Results of Operations

Unless otherwise noted, the following discussion relates only to results from continuing operations.

We evaluate the performance of our operations by monitoring key measures of growth and profitability. We measure our growth by examining our gross premiums written. We measure our profitability by examining our net income, loss ratio, expense ratio and combined ratio. The following table provides financial results and key measures that we use to evaluate our results. In discussing the trends in our financial results, we refer principally to the information contained in the following table:

	North Pointe Holdings Corporation
	Years Ended December 31,
	2007			2006			2005
	(Dollars in thousands, except ratio data)
Gross premiums written:
Commercial lines	$	108,480		$	81,901		$	78,551
Personal lines		10,844			8,284			32,471
Total gross premiums written	$	119,324		$	90,185		$	111,022
Net premiums written:
Commercial lines	$	96,808		$	56,140		$	63,289
Personal lines		10,600			4,987			22,790
Total net premiums written	$	107,408		$	61,127		$	86,079
Revenues:
Net premiums earned:
Commercial lines	$	88,431		$	59,456		$	61,066
Personal lines		5,748			7,195			23,643
Total net premiums earned		94,179			66,651			84,709
Investment income, net		8,676			5,731			3,865
Net realized capital gains (losses)		3,320			(214	)		(168	)
Fees and other income		6,649			1,369			1,901
Total revenues		112,824			73,537			90,307
Expenses:
Losses and loss adjustment expenses, net		53,548			30,874			43,971
Policy acquisition costs		21,663			19,036			21,776
Other underwriting and operating expenses		27,981			21,781			17,812
Interest expenses		3,261			1,711			959
Total expenses		106,453			73,402			84,518
Income before federal income tax expense and discontinued operations		6,371			135			5,789
Federal income tax expense		1,755			10			1,997
Income from continuing operations		4,616			125			3,792
Net income from discontinued operations		5,709			4,551			58
Net income	$	10,325		$	4,676		$	3,850
Loss ratio:
Commercial lines		58.1	%		39.9	%		47.8	%
Personal lines		37.7			99.0			62.5
Consolidated		53.1			45.4			50.8
Expense ratio		49.2			60.0			45.7
Combined ratio		102.3			105.4			96.5

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Gross Premiums Written

Gross premiums written is the sum of direct premiums written and assumed premiums written. Direct premiums written is total policy premiums, net of cancellations, associated with policies issued and underwritten by our insurance company subsidiaries. Assumed premiums written is total premiums associated with the insurance risk transferred to us by other insurance companies pursuant to reinsurance contracts.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Gross premiums written for 2007 were $119.3 million as compared to $90.2 million for 2006, an increase of $29.1 million, or 32.3%.

Gross premiums written in our commercial lines segment for 2007 were $108.5 million as compared to $81.9 million for 2006, an increase of $26.6 million, or 32.5%. This increase was primarily attributable to $29.2 million of gross premiums written by Capital City Insurance which was acquired in July 2007. This increase was offset by a $10.7 million decrease in the Crop program which was discontinued for 2007. Offsetting the decrease from the Crop program were other small increases throughout the rest of our commercial programs.

Gross premiums written in our personal lines segment for 2007 were $10.8 million as compared to $8.3 million for 2006, an increase of $2.5 million, or 30.1%. This increase was primarily attributable to $5.1 million of gross premiums written in our Pets Best program, which was new in 2007, and an increase of $1.3 million of gross premiums written in our Midwest and Western homeowners lines of business. These increases were offset by a decrease of $3.9 million in our Florida homeowners line of business.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Gross premiums written for 2006 were $90.2 million as compared to $111.0 million for 2005, a decrease of $20.8 million, or 18.7%.

Gross premiums written in our commercial lines segment for 2006 were $81.9 million as compared to $78.6 million for 2005, an increase of $3.3 million, or 4.2%. This increase was primarily attributable to $11.0 million in gross premiums written in our crop fronting program and flood program, which we began in 2006, and a $2.3 million increase in our bowling centers and roller skating centers lines. The crop fronting program was discontinued for 2007. These increases were partially offset by an $8.6 million decrease in gross written premiums in our Florida small business line, which resulted from cancellations and non-renewals, and a $2.2 million decrease in our Restaurant Bar Tavern, or RBT lines. The cancellations and non-renewals were the result of our prompt reduction of our wind exposure in Florida when it became evident that we could not obtain catastrophe reinsurance coverage for the 2006 hurricane season. We made the decision to reduce our exposure in early June which was substantially implemented by July 2006 by the cancellation or non-renewal of all policies included in specific classes within our Florida small business line. This reduced total annualized gross premiums written in our Florida small business line by approximately $18.0 million, or 40.0%, and total insurable value with wind exposure by approximately 75.0%. The decrease in our RBT line was attributable to a reduction in policy count resulting from a more competitive market.

While we did not cancel the bowling centers line written in Florida, we have reduced our exposure to catastrophe losses in the bowling line through a combination of certain non-renewals, higher deductibles and other increased underwriting restrictions. In addition, we took measures to substantially increase rates on the bowling line, as well as our other Florida commercial lines which we retained, including contractor and RBT lines.

Gross premiums written in our personal lines segment for 2006 were $8.3 million as compared to $32.5 million for 2005, a decrease of $24.2 million or 74.5%. This decrease was primarily attributable our Florida homeowners insurance line which was written in North Pointe Casualty in 2005 but transferred to Home Pointe in 2006 and therefore is excluded from continuing operations (see Note 3). Home Pointe had gross premiums written of $24.4 million and $1.1 million for 2006 and 2005, respectively.

Net Premiums Written

Net premiums written is the amount of our gross premiums written less the amount of premiums that we transfer, or cede, to our reinsurers based upon the risks they accept pursuant to our reinsurance treaties. We relate our net premiums written to gross premiums written to measure the amount of premium we retain after cessions to reinsurers. Our primary reinsurance agreement is a multi-line, excess of loss treaty covering substantially all lines

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and a variety of other reinsurance treaties, including catastrophe, corporate clash, and facultative coverage. See “Business — Reinsurance,” incorporated elsewhere within this Annual Report on Form 10-K.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Net premiums written for 2007 were $107.4 million as compared to $61.1 million in 2006, an increase of $46.3 million, or 75.8%. This increase is primarily due to an increase in gross premiums written (discussed above) and a decrease in premiums ceded to reinsurers. Ceded premiums written for 2007 were $11.9 million as compared to ceded premiums written of $29.1 million for 2006, an $17.2 million decrease, or 59.1%. The decrease in ceded premiums written was primarily due to decreased ceding rates. For example, in our master reinsurance treaty agreement, which provides 100% coverage up to $1.0 million, we ceded 10.7% of gross premiums written in 2006 and we ceded 3.0% and 3.3% of gross premium written in 2007 on property and casualty lines of business, respectively. Additionally, we are no longer writing the crop program in which we ceded 98% of our gross premiums written in 2006.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Net premiums written for 2006 were $61.1 million as compared to $86.1 million in 2005, a decrease of $25.0 million, or 29.0%. The decrease in net premiums written was primarily attributable to a decrease in gross premiums written (discussed above) and an increase in the cost of reinsurance. Ceded premiums written for 2006 were $29.1 million as compared to $24.9 million in 2005, an increase of $4.2 million, or 16.9%. Of the $4.2 million increase in ceded premiums written, approximately $10.5 million was attributable to our crop fronting program in which we ceded 98.0% of our gross premiums and 100.0% of the losses. We wrote our first crop policies in the first quarter of 2006. Offsetting the increase in the crop fronting program were smaller decreases, primarily resulting from policy cancellations in our Florida small business line.

Net Premiums Earned

Net premiums are earned over the life of a policy and differ from net premiums written, which are recognized on the effective date of the policy.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Net premiums earned for 2007 were $94.2 million as compared to $66.7 million for 2006, an increase of $27.5 million, or 41.2%. The increase in net premiums earned was consistent with the increase in net premiums written discussed above.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Net premiums earned for 2006 were $66.7 million as compared to $84.7 million for 2005, a decrease of $18.0 million, or 21.3%. The decrease in net premiums earned was consistent with the decrease in net premiums written discussed above.

Our premiums earned by segment, for the years ended December 31, 2007, 2006 and 2005, are as follows:

	Year Ended December 31,
	2007		2006		2005
	(Dollars in thousands)
Gross premiums earned:
Commercial lines	$	103,743	$	85,043	$	75,684
Personal lines		6,043		10,609		33,967
Total		109,786		95,652		109,651
Ceded premiums earned:
Commercial lines		15,312		25,587		14,618
Personal lines		295		3,414		10,324
Total		15,607		29,001		24,942
Net premiums earned:
Commercial lines		88,431		59,456		61,066
Personal lines		5,748		7,195		23,643
Total	$	94,179	$	66,651	$	84,709

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Net Investment Income

Our investment portfolio is generally highly liquid and consists substantially of readily marketable, investment-grade fixed-income securities. Net investment income is primarily comprised of interest earned on these securities, net of related investment expenses, and excludes realized gains and losses.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Net investment income for 2007 was $8.7 million as compared to $5.7 million for 2006, an increase of $3.0 million, or 52.6%. The increase was primarily attributable to Capital City Insurance which earned net investment income of $2.9 million since acquisition in July 2007. The average duration of our debt securities portfolio was 3.7 and 2.5 years as of December 31, 2007 and 2006, respectively.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Net investment income for 2006 was $5.7 million as compared to $3.9 million for 2005, an increase of $1.8 million, or 46.2%. The increase in net investment income was attributable to a combination of an increase in our average cash and invested assets balance and an increase in the annualized yield on our portfolio. The increase in average cash and invested assets resulted primarily from the issuance of $20.0 million, mandatorily redeemable trust preferred securities during the first quarter of 2006. Pre-tax yield on our portfolio increased to 4.2% in 2006 from 3.1% in 2005. This increase in pre-tax yield is primarily attributable to an increase in prevailing market interest rates. For example, the three-year U.S. Treasury notes increased to 4.7% in 2006 from 3.9% in 2005, which we believe reflected the trend in market interest rates for debt securities with durations similar to our cash and securities mix. The average duration of our debt securities portfolio was 3.5 and 3.3 years as of December 31, 2006 and 2005, respectively.

Net Realized Gains (Losses) on Investments

Net realized gains (losses) on investments are principally affected by changes in interest rates, the timing of sales of investments and changes in credit quality of the securities we hold as investments.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Realized gains, net of realized losses, on the disposition of investments for 2007 were $3.3 million for 2007 as compared to net realized losses of $214,000 for 2006, an increase of $3.5 million. The majority of these gains were recognized in our equities portfolio during the fourth quarter when our investment advisors capitalized on the positive market conditions.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Realized losses, net of realized gains, on the disposition of investments for 2006 were $214,000 as compared to $168,000 for 2005, an increase of $46,000, or 27.4%. Substantially all of the realized losses were generated from the sales or calls of debt securities which experienced decreases in fair values attributable to increases in prevailing market interest rates.

Fees and Other Income

Fees and other income is generated from commissions earned for policies written by one of our wholly-owned managing general agents for unrelated insurance companies, policy or inspection fees charged on our personal homeowners and commercial policies, and premium finance charges.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Fees and other income for 2007 was $6.6 million as compared to $1.4 million for 2006, an increase of $5.2 million, or 371.4%. This increase is due to the acquisition of Capital City Holdings which generated $5.2 million in fees and other income for 2007, primarily from their Davis-Garvin Agency subsidiary.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Fees and other income for 2006 was $1.4 million as compared to $1.9 million for 2005, a decrease of $532,000, or 28.0%. During 2006, the Florida homeowner’s book of business was transferred from North Pointe Casualty to Home Pointe Insurance. This book of business generated a large portion of our fees and other income balance, and is included in income from discontinued operations for 2006.

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Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses represent our largest expense item and include payments made to settle claims, estimates for future claim payments and changes in those estimates for current and prior periods, as well as adjusting costs incurred in connection with settling claims. Losses and loss adjustment expenses for a given period are influenced by the number of exposures covered in the current year, trends in claim frequency and severity, changes in the cost of adjusting claims, changes in the legal environment and the re-estimation of prior years’ reserves in the current year. Gross losses and loss adjustment expenses are those amounts before consideration of ceded losses. See “Business — Reinsurance.” Net losses and loss adjustment expenses are gross losses and loss adjustment expenses less ceded losses and loss adjustment expenses. We report our losses and loss adjustment expenses net of reinsurance.

Losses and loss adjustment expenses include an increase or reduction in those expenses resulting from continued reassessment of reserves established in prior periods. In 2007, 2006, and 2005, losses and loss adjustment expenses included an increase of $3.3 million and decreases of $2.5 million, and $5.4 million, respectively, as a result of development from reserve changes relating to prior periods. See “Business — Unpaid Losses and Loss Adjustment Expenses,” incorporated elsewhere within this Annual Report on Form 10-K.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Losses and loss adjustment expenses for 2007 were $53.5 million as compared to $30.9 million for 2006, an increase of $22.6 million, or 73.1%. Our loss ratio for 2007 was 53.1% as compared to 45.4% in 2006.

The increase in the loss and loss adjustment expenses was primarily attributable to the acquisition of Capital City Insurance and adverse development in the Florida commercial lines of business. For the year ended December 31, 2007, we incurred adverse development in the RBT and bowling, Florida small business, and commercial automobile lines of $1.1 million, $1.6 million and $958,000, respectively. The loss and loss adjustment expenses attributable to Capital City as of December 31, 2007 were $13.2 million.

The loss ratio for our commercial lines for 2007 was 58.1% as compared to 39.9% for 2006. Like the increase in the expenses, the increase in loss ratio is also the result of the acquisition of Capital City Insurance and adverse reserve development. Loss ratios for Capital City have been traditionally higher than those we historically reported. Loss and loss adjustment expenses attributable to Capital City in 2007 represented 24.6% and premiums earned represented 23.6% of the respective totals. The higher loss ratio produced by Capital City combined with its comparative size is a significant factor in the increase in the overall ratio. The adverse development experienced in 2007 contributed 4.9 percentage points to the increase in the loss ratio for the commercial lines; conversely the 2006 favorable development decreased the total by 6.6 percentage points.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Losses and loss adjustment expenses for 2006 were $30.9 million as compared to $44.0 million for 2005, a decrease of $13.1 million, or 29.8%. Our loss ratio for 2006 was 45.4% as compared to 50.8% in 2005.

The decrease in the loss and loss adjustment expenses was primarily attributable to a decrease in hurricane losses. For the year ended December 31, 2006, we incurred $746,000 of unfavorable development in our reserves for 2005 hurricanes of which $629,000 and $117,000 was attributable to our commercial and personal lines, respectively. Four hurricanes struck Florida, Texas and the U.S. Gulf Coast, which increased our overall 2005 loss ratio by 15.1 percentage points, from 35.7% to 50.8%. We did not have any development in 2006 on reserves in our commercial lines segment related to 2004 hurricanes.

The loss ratio for our commercial lines for 2006 was 39.9% as compared to 47.8% for 2005. This decrease in loss ratio resulted from no hurricanes in 2006, as well as, improved loss experience from non-catastrophic risks. The total hurricane net losses and loss adjustment expenses incurred in our commercial lines for the years ended December 31, 2006 and 2005 were $629,000 and $4.8 million, respectively, plus $2.0 million of accelerated reinsurance reinstatement charges in 2005 recorded as a reduction of net premiums earned. The $629,000 unfavorable development related to the 2005 hurricanes had an immaterial impact on our 2006 commercial loss ratio of 39.9%, whereas hurricanes and reinstatement charges in 2005 increased our commercial lines loss ratio from 38.3% to 47.8%.

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Favorable development of prior period estimates reduced losses and loss adjustment expenses in our commercial lines by $4.0 million in 2006 from $28.0 million to $24.0 million. Such favorable development reduced our commercial lines loss ratios from 46.5% to 39.9% in 2006.

The impact of the hurricane losses and reserve development on our loss ratios for our commercial lines for the years ended December 31, 2007, 2006 and 2005 are as follows:

	2007			2006			2005
Commercial lines loss ratios before effects of hurricane losses and reserve development		53.2	%		47.7	%		44.0	%
Increase (decrease) in loss ratios attributable to reserve development		4.9			(6.6	)		(5.7	)
(Decrease) increase in loss ratios attributable to hurricane losses		—			(1.2	)		9.5
Total commercial lines loss ratios		58.1	%		39.9	%		47.8	%

Reserve development occurs primarily in our liability lines which rely more on estimations in establishing reserves than do property lines and require more years to fully develop. The favorable reserve adjustments were primarily attributable to lower actual loss development as compared to our originally estimated loss development factors.

The loss ratio for our personal lines for 2007 was 37.7% as compared to 99.0% for 2006. This decrease was primarily attributable to favorable reserve development. Favorable reserve development of $303,000 in 2007 for the personal automobile lines represented a significant shift from the adverse development in this line of $1,779,000 in 2006. Favorable development related to the homeowners lines of $705,000 in 2007 compared to the 2006 favorable development of $320,000 also contributed to the decrease in the overall loss ratio. This development resulted in a decrease in the loss ratio for personal lines of 17.5 percentage points in 2007 compared to an increase of 20.5 percentage points in 2006. The personal automobile lines have been in runoff since the sale of renewal rights on these policies in 2004.

The loss ratio for our personal lines for 2006 was 99.0% compared to 62.5% for 2005. This increase was primarily attributable to a reduction in net earned premiums in our personal lines business due to the sale of Home Pointe. As a result of the discontinued operations, our net earned premiums in our personal lines of business for 2006 decreased $13.6 million, from $20.8 million to $7.2 million and losses incurred decreased $4.5 million, from $11.6 million to $7.1 million resulting in a significant loss ratio on continued operations in this line of business.

Unfavorable development of prior period reserve estimates increased losses and loss adjustment expenses in our personal lines by $1.6 million in 2006 from $5.6 million to $7.2 million and increased the loss ratios from 78.5% to 99.0% in 2006. We experienced favorable development of $2.0 million in our personal lines segment in 2005, which reduced the loss ratio from 70.8% to 62.5% in 2005.

The impact of the hurricane losses and reserve development on our loss ratios for our personal lines segment for the years ended December 31, 2007, 2006 and 2005 are provided as follows:

	2007			2006			2005
Personal lines loss ratios before effects of hurricane losses and reserve development		71.0	%		80.1	%		39.2	%
(Decrease) increase in loss ratios attributable to reserve development		(17.5	)		20.5			(8.3	)
(Decrease) increase in loss ratios attributable to hurricane losses		(15.6	)		(1.6	)		31.6
Total personal lines loss ratios		37.7	%		99.0	%		62.5	%

The unfavorable reserve adjustments in our personal lines in 2006 were primarily attributable to our personal automobile line (currently in run-off) in which we experienced worse than expected loss development in the liability coverages. The favorable reserve adjustment in our personal line in 2005 was primarily attributable to greater than expected loss development in the liability coverage at that time.

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Policy Acquisition Costs

Commissions generally represent approximately 70% of our total policy acquisition costs, with the remaining 30% attributable to administrative expenses directly related to the marketing and issuance of insurance policies. Policy acquisition costs are capitalized and amortized over the life of the related policy.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Policy acquisition costs for 2007 were $21.7 million as compared to $19.0 million for 2006, an increase of $2.7 million or 14.2%. The increase was primarily attributable to an increase in gross premiums earned.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Policy acquisition costs for 2006 were $19.0 million as compared to $21.8 million for 2005, a decrease of $2.8 million or 12.8%. The decrease was primarily attributable to a decrease in gross premiums earned.

Other Underwriting and Operating Expenses

Other underwriting and operating expenses consist primarily of employee compensation and occupancy costs, such as rent and utilities. Other underwriting and operating expenses are largely fixed and do not vary directly with premium volume.

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Other underwriting and operating expenses for the year ended December 31, 2007 were $28.0 million as compared to $21.8 million for the year ended December 31, 2006, an increase of $6.2 million, or 28.4%. The increase was primarily attributable to costs incurred by Capital City, which was acquired in 2007.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Other underwriting and operating expenses for the year ended December 31, 2006 were $21.8 million as compared to $17.8 million for the year ended December 31, 2005, an increase of $4.0 million, or 22.5%. The increase was primarily attributable to increased personnel and external services costs associated with being a public company. In addition, in 2006, we incurred $2.7 million of operating expenses attributable to the FIGA assessment which stemmed from the insolvency of POE Financial Insurance Group in early 2006.

Interest Expense

Year Ended December 31, 2007 as Compared to Year Ended December 31, 2006.  Interest expense for 2007 was $3.3 million as compared to $1.7 million for 2006, an increase of $1.6 million, or 94.1%. The increase in interest expense was primarily attributable to the utilization of the senior credit facility related to the acquisition of Capital City.

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005.  Interest expense for 2006 was $1.7 million as compared to $959,000 for 2005, an increase of $752,000, or 78.4%. The increase in interest expense was primarily attributable to the $20.6 million junior subordinated note, bearing interest at 8.7% per annum, and issued in concert with the trust preferred securities in February 2006.

Federal Income Tax Expense

Year Ended December 31, 2007.  Federal income tax expense on income from continuing operations for 2007 was $1.8 million, representing an effective tax rate of 27.5%. The statutory rate is 34.0%. The decrease in the statutory rate is primarily due to $356,000 favorable tax position from tax exempt income.

Year Ended December 31, 2006.  Federal income tax expense on income from continuing operations for 2006 was $10,000, representing an effective tax rate of 7.4%. The statutory rate is 34.0%. Our effective rate was lower than the statutory rate because of a $36,000 reduction for dividends received deductions.

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As of December 31, 2007, we had an aggregate of $5.7 million in unrealized NOL carryforwards. Federal income tax regulations limit our utilization of these amounts to $960,000 annually in years 2008 through 2011, $922,000 for the year 2012, $819,000 for the year 2013 and $20,000 in years 2014 through 2020.

Net Operating
Losses
Carried		Year	Year of
Forward		Originated	Expiration
(Dollars in thousands)
$	163	1997		2011
	472	1999		2018
	1,393	2000		2019
	3,693	2001		2020
$	5,721

Liquidity and Capital Resources

Sources and Uses of Funds

North Pointe Holdings Corporation is a holding company with no business operations of its own. Consequently, our ability to pay dividends to shareholders, meet our debt payment obligations and pay our taxes and administrative expenses is dependent on intercompany service agreements with, and dividends from, our subsidiaries, including our insurance company subsidiaries. Our insurance company subsidiaries are subject to extensive regulation by insurance regulatory agencies in each state in which they do business, including restrictions on the amount of dividends they can pay to their shareholder. See “Liquidity and Capital Resources — Capital Constraints,” incorporated elsewhere within this Annual Report on Form-10K.

There are no restrictions on the payment of dividends to us by our non-insurance company subsidiaries other than state corporate laws regarding solvency. As a result, our non-insurance company subsidiaries generate revenues, profits and net cash flows that are generally unrestricted as to their availability for payment of dividends. We may use these revenues to service our corporate financial obligations, such as debt service, shareholder dividends or acquisitions. Our administrative segment is comprised of the operations of our non-insurance company subsidiaries.

Our primary assets are the stock of North Pointe Financial (a non-insurance company) and the stock of our insurance companies. Our ability to pay dividends to shareholders, meet our debt payment obligations and pay our general and administrative expenses is largely dependent on cash dividends we receive from North Pointe Financial. In turn, North Pointe Financial’s primary source of revenue, from which dividends to us have been paid, is the service fees and commissions it receives from our insurance companies pursuant to various servicing, marketing and management agreements in effect between those entities. In addition, it is possible that North Pointe Financial could receive dividends from our insurance companies paid out of their retained earnings, which North Pointe Financial could then pay to us as dividends. However, we traditionally have not issued dividends from our insurance companies to fund our general expenses and debt payment obligations. Moreover, holding company laws regulate dividends and other payments by our insurance companies.

Our non-insurance companies provide management and administrative services to our insurance company subsidiaries pursuant to intercompany service agreements. These services include providing management, marketing, offices and equipment, and premium collection, for which our insurance companies pay our non-insurance companies fees primarily based on a percentage of gross premiums written. In exchange for providing these intercompany services, our non-insurance companies recorded revenues of $23.2 million, $20.5 million, and $19.3 million, for the years ended December 31, 2007, 2006 and 2005, respectively. Our non-insurance companies also derive nonaffiliated revenues from installment fees, commissions from nonaffiliated insurance carriers, premium financing and other income which totaled $6.6 million, $1.9 million, and $1.9 million for the years ended December 31, 2007, 2006 and 2005, respectively. There were no material non-cash components of our non-

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insurance company revenues. All of the agreements between our regulated insurance company subsidiaries and our non-insurance company subsidiaries have been approved by the applicable regulators.

The primary obligations of our non-insurance companies are salary and administrative expenses and debt service obligations. Our non-insurance companies incurred salary and administrative expenses of $21.7 million, $12.8 million, and $10.6 million for the years ended December 31, 2007, 2006 and 2005, respectively. Our minimum principal and interest payments on our bank debt were $3.2 million, $1.8 million, and $4.5 million for the years ended December 31, 2007, 2006 and 2005, respectively.

Our insurance and non-insurance operating subsidiaries’ principal sources of funds are insurance premiums, investment income, proceeds from the maturity and sale of invested assets and installment fees. These funds are primarily used to pay claims, commissions, employee compensation, taxes and other operating expenses, and to service debt, purchase investments and pay dividends to us.

We generally expect to pay claims and other expenses from operating cash flows. Historically, cash and cash equivalents (i.e., investments having an original maturity of 90 days or less) have comprised at least 10% of our investment portfolio, and our current investment guidelines require us to maintain this level of liquidity. We also seek to stagger the maturities of our investments so that we have access to maturing instruments on a regular basis. In addition, we seek to invest at least 70% of our investment portfolio in highly liquid, fixed-income securities having an average duration of less than four years. We believe that managing our cash and investments in the foregoing manner limits our exposure to losses resulting from the untimely sale of securities due to unanticipated cash requirements.

Cash Flows

Net cash provided by operating activities for the year ended December 31, 2007 was $12.2 million as compared to $7.1 million for 2006, an increase of $5.1 million. The increase in cash from operations was attributable to a combination of factors including a $42.3 million increase in premiums collected, net of ceded premiums paid, a $3.3 million increase in investment income, and a $5.2 million increase in other fees and income. These increases in cash were offset by a $24.4 million increase in net losses paid, a $17.6 million increase in cash paid for policy acquisition costs as well as operating and interest expense and a $3.5 million increase in taxes paid.

Net cash provided by operating activities for the year ended December 31, 2006 was $7.1 million as compared to $4.8 million for 2005, an increase of $2.3 million. The increase in cash from operations was attributable to a combination of factors including a $20.2 million decrease in net losses and loss adjustment expenses paid (there were no hurricanes in 2006), a $4.8 million decrease in taxes paid, and a $2.3 million increase in investment income. These increases in cash were offset by a $16.0 million reduction in net premiums collected, and $9.0 million increase in cash paid for policy acquisition costs as well as operating and interest expense. The $16.0 million reduction in net premiums collected resulted from receiving cash in the fourth quarter of 2005 relating to Florida homeowners policies renewing in the first quarter of 2006. Because the entire Florida homeowners line was new in the first half of 2005, there were no similar premiums paid in advance in December 2004, thus all premiums from our Florida homeowners policies written in the first quarter of 2005 were collected in the same period while a portion of the Florida homeowners policies written in the first quarter of 2006 were paid in late 2005.

Net cash used in investing activities for the year ended December 31, 2007 was $12.4 million and was attributable to $27.7 million in cash used in the acquisition of Capital City, offset by $15.8 million in investment portfolio sales and other dispositions in excess of cash used in investment portfolio purchases.

Net cash used in investing activities for the year ended December 31, 2006 was $12.6 million and was attributable to $10.3 million of net cash used in investment portfolio purchases in excess of investment portfolio sales and other dispositions, $620,000 of cash used for the capital contribution to NP Capital Trust I (an unconsolidated Delaware trust used to issue trust preferred securities), and $1.7 million of cash used to purchase fixed assets.

Net cash provided by financing activities for the year ended December 31, 2007 was $19.0 million, net borrowings exceeding debt repayments, which was attributable to $23.3 million of net borrowings for the purchase of Capital City, partially offset by $2.1 million used to repurchase our common stock.

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Net cash provided by financing activities for the year ended December 31, 2006 was $17.4 million and was attributable to $19.9 million in proceeds (net of $690,000 of issuance costs) received from the issuance of the subordinated debentures (in conjunction with the issuance of the trust preferred securities), partially offset by a $2.5 million decrease in the net senior debt borrowings.

In 2007, contributions of $5.0 million, $1.0 million, $3.0 million and $3.0 million by North Pointe Insurance, North Pointe Casualty, Davis-Garvin Agency and Midfield, respectively, were made to the parent company to provide funds for the acquisition of the Capital City entities and to pay down a portion of the outstanding debt.

We believe that existing cash and investment balances, as well as cash flows from operation, will be adequate to meet the capital and liquidity needs of North Pointe Holdings and each of its subsidiaries during the 12-month period following the filing of this Annual Report on Form 10-K. We currently anticipate meeting our long-term capital and liquidity needs through a combination of cash flows from operations and possible future debt or equity financings. No assurances can be given, however, that we will generate cash flows from operations sufficient to meet our ongoing financial requirements or that debt or equity financing will be available to us upon acceptable terms, if at all, in the future.

Capital Constraints

Writings to Surplus Ratios:  Our ability to write additional insurance policies is largely dependent on the statutory leverage of our insurance company subsidiaries. Michigan insurance regulations require insurance companies to maintain a gross premium writings-to-capital and surplus ratio under 3.0 to 1.0. Florida insurance regulations require insurance companies to maintain a net premiums-to-capital and surplus ratio (rather than a gross premiums-to-capital and surplus ratio) under 4.0 to 1.0. Statutory capital and surplus is defined as total assets less total liabilities of insurance companies determined in accordance with statutory accounting principles.

North Pointe Insurance’s gross premiums written to statutory capital and surplus ratios were 1.59 to 1.0 and 1.27 to 1.0 as of December 31, 2007 and 2006, respectively. North Pointe Casualty’s net premiums written to statutory capital and surplus ratios were 1.26 to 1.0 and 0.77 to 1.0, as of December 31, 2007 and 2006, respectively.

Risk Based Capital:  The National Association of Insurance Commissioners, or NAIC, has adopted risk-based capital, or RBC, requirements that require insurance companies to calculate and report information under an RBC formula. The RBC formula attempts to measure statutory capital and surplus needs based on the risks in an insurance company’s mix of products and investment portfolio. The RBC formula is used by state insurance regulators to monitor trends in an insurance company’s statutory capital and surplus, for the purpose, if necessary, of initiating regulatory action. Our insurance companies, except for Midfield, are required to submit a report of their RBC levels to the insurance departments of their states of domicile as of the end of the previous calendar year. As of December 31, 2007, all of our insurance companies had RBC levels in excess of an amount that would require any regulatory intervention.

Regulations on Dividends Paid by Insurance Companies:  State insurance laws restrict the ability of our insurance company subsidiaries to declare dividends to us. Michigan, Florida and South Carolina have regulations, outlined below, which provide guidance as to when an insurance company may pay a dividend. The District of Columbia does not have detailed regulations, but provides a broader guideline which leaves much of the judgment in the hands of the insurance commissioner in the District of Columbia. In addition to the regulations outlined below, insurance departments will also look to financial measurements such as writings-to-surplus ratios, RBC levels or IRIS ratios when determining whether to approve a dividend. In 2007, North Pointe Insurance, North Pointe Casualty and Midfield paid ordinary dividends of $5.0 million, $1.0 million and $3.0 million, respectively. In 2006, North Pointe Insurance declared a $500,000 stock dividend. In 2005, North Pointe Insurance paid a $3.3 million ordinary dividend.

Under the Michigan holding company law, our Michigan insurance company, North Pointe Insurance, can only declare or pay dividends from its earned surplus, unless the Michigan insurance regulator approves the dividend prior to payment. In addition, our Michigan insurance company must obtain prior approval from the Michigan insurance regulator before it may pay extraordinary dividends or distributions to its shareholder, North Pointe Financial. In Michigan, an extraordinary dividend or distribution includes any dividend or distribution of cash or

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other property if the fair market value of the cash or other property, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) 10% of the insurer’s surplus as of December 31 of the preceding year or (2) the net income of the insurer, not including realized capital gains, for the twelve-month period ending December 31 of the preceding year, in each case determined in accordance with statutory accounting practices. Dividends or distributions falling below this threshold are considered ordinary shareholder dividends. Ordinary shareholder dividends declared by our Michigan insurer must be reported to the Michigan insurance regulator at least ten days before they are paid, but these dividends are not subject to prior approval. Michigan’s insurance law would allow North Pointe Insurance to pay up to $3.9 million in ordinary dividends in 2008. Nonetheless, the Michigan insurance regulator retains the right to deny any dividend, extraordinary or otherwise. Accordingly, we typically obtain prior approval on all dividend distributions from North Pointe Insurance.

Under the Florida Holding Company Law, our Florida insurance company (North Pointe Casualty) can only declare or pay dividends out of that part of its available and accumulated surplus funds that is derived from its realized net operating profits on its business and net realized capital gains. In addition, North Pointe Casualty must obtain prior approval from the Florida insurance regulator before it may pay extraordinary dividends or distributions to its shareholder, North Pointe Financial. In Florida, an extraordinary dividend or distribution includes any dividend or distribution that exceeds either of the following two thresholds:

•  The larger of (1) the lesser of 10% of the insurer’s surplus or net income (not including realized capital gains) plus a two-year carryforward; (2) 10% of surplus, with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; or (3) the lesser of 10% of surplus or net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains. This threshold applies if the insurer does not provide prior notice of the dividend to the Florida insurance regulator and does not certify that, following payment of the dividend, the insurer’s surplus will equal or exceed 115% of the surplus required under applicable Florida statutes.

•  The larger of (1) 10% of the insurer’s surplus derived from realized net operating profits on its business and net realized capital gains; or (2) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year. This threshold applies if the insurer provides prior notice of the dividend to the Florida insurance regulator, which notice certifies that, following payment of the dividend, the insurer’s surplus will equal or exceed 115% of the surplus required under the applicable Florida statutes.

Dividends or distributions falling below these thresholds are not subject to prior approval by the Florida insurance regulator. Florida’s insurance law does not allow North Pointe Casualty to pay any dividends without prior regulatory approval in 2008.

Under the South Carolina Insurance Holding Company Regulatory Act, our South Carolina company, Capital City Insurance Company, is required to report all dividends within five business days following the declaration and at least fifteen days before payment. The declaration of a dividend confers no rights until the department either has approved the payment of the dividend or has not disapproved the payment within fifteen days after receiving notice of the declaration. Accordingly, prior approval would be sought for any dividend distributions from Capital City Insurance Company.

Under District of Columbia law, insurance companies can only dividend an amount which is deemed to be in excess of the amount required by the commissioner. There is not a specific formula defining an ordinary dividend versus an extraordinary dividend. Accordingly, all dividend payments must be approved by the District of Columbia Department of Insurance, Securities and Banking.

Outstanding Debt

On July 2, 2007, the Company entered into Amendment Number 2 to the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Comerica Bank (“Comerica”), as agent. This Credit Agreement expires July 1, 2010 and provides a revolving credit line of $35,000,000. At December 31, 2007, there was an outstanding balance of $21.3 million on the revolving credit line bearing interest of 6.41%.

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Borrowings under the Credit Agreement bear interest at a floating rate equal to either (1) a Eurodollar rate equal to a stated margin of 1.25% plus the interest rate certain of Comerica’s lending offices offer on deposits to prime banks in the Eurodollar market or (2) a rate based upon Comerica’s prime rate of interest less 1.00%. Interest on Eurodollar-based rate advances is payable on the last day of the interest period applicable thereto. Interest on prime-based rate advances is payable quarterly in arrears.

The Credit Agreement provides that Comerica will issue, on behalf of the Company, letters of credit in amounts up to $5,000,000. The amount of any outstanding letters of credit by Comerica will reduce, dollar for dollar, the aggregate amount available under the revolving credit line.

The borrowings under the Credit Agreement may be used to finance certain permitted acquisitions and to fund working capital needs of the Company. The obligations under the Credit Agreement are unconditionally guaranteed by certain of the Company’s subsidiaries and are secured by (1) a pledge by the Company of 100% of the issued and outstanding stock of certain subsidiaries of the Company and (2) a security interest in substantially all of the tangible and intangible assets of certain subsidiaries of the Company.

The Credit Agreement requires that the Company comply with various financial and other covenants, including requirements that it maintain an A.M Best rating of no less than “B+” for certain of its insurance company subsidiaries, and that the Company maintain the following financial ratios for each insurance company subsidiary including the Capital City acquired entities:

•  adjusted capital and surplus will be in excess of 275% of authorized control level risk-based capital as of each fiscal year end;

•  there shall be no more than four IRIS calculations that result in unusual values at each fiscal year end;

•  the ratio of net premiums written to statutory capital and surplus will not exceed more than 4.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 2.5 to 1.0 in the case of North Pointe Insurance Company; and 2.5 to 1.0 in the case of Capital City Insurance Company; and

•  the ratio of gross premiums written to statutory surplus will not exceed more than 10.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 3.0 to 1.0 in the case of North Pointe Insurance Company and 3.0 to 1.0 in the case of Capital City Insurance Company.

The Credit Agreement contains negative covenants restricting the Company’s ability to, among other things, enter into a merger or consolidation, sell, lease or otherwise dispose of its assets, acquire the stock or assets of another entity or declare or pay any dividends, guaranty the obligations of a third party, incur indebtedness, and make certain investments.

Mortgage Obligation.  On August 18, 2005, we assumed the mortgage on the office building in Southfield, Michigan after acquiring Northwest Zodiac. The mortgage loan terms include monthly principal and interest payments of $22,000 and a balloon payment of $1.9 million due in June 2011. As of December 31, 2007, the mortgage debt obligation had an outstanding balance of $2.4 million.

Issuance of Trust Preferred Securities

On February 22, 2006, we issued $20.0 million of 30-year, mandatorily redeemable trust preferred securities (the “Trust Preferreds”) through a newly formed, unconsolidated wholly-owned subsidiary, NP Capital Trust I (the “Trust”).

The Trust Preferreds mature on March 15, 2036, but may be redeemed at our option beginning on March 15, 2011. The Trust Preferreds require quarterly distributions at a fixed rate of 8.70% per annum for five years and thereafter at a variable rate, reset quarterly, at the three-month LIBOR rate plus 3.64%. Distributions are cumulative and will accrue from the date of original issuance, but may be deferred for up to 20 consecutive quarterly periods.

The proceeds of the Trust Preferreds received by the Trust, along with proceeds of $620,000 paid by us to the Trust from the issuance of common securities by the Trust to us, were used to purchase $20.6 million of our junior subordinated debt securities (the “Debt Securities”) under terms which mirror those of the Trust Preferreds.

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We primarily invested the $19.3 million of proceeds, which is net of $690,000 of issuance costs, in high-grade debt securities which will remain available to fund future contributions to our subsidiaries, acquisition activities as they may arise, and other capital uses. In June 2006 and September 2006, we contributed $3.0 million and $2.0 million of the funds, respectively, to North Pointe Casualty to meet the minimum statutory capital and surplus of $15.0 million required by many states for surplus lines carriers. In December 2006, we contributed $4.0 million to Home Pointe Insurance to meet statutory capital and surplus levels required by A.M. Best for their initial rating.

We obtained consents and waivers from our senior lenders acknowledging that the purchase of our equity interest in and issuance of subordinated debt securities to NP Trust and the guaranty of the NP Trust’s preferred securities would not constitute an event of default under the senior credit facility.

The Company acquired the following additional trust preferred securities as part of the Capital City acquisition:

•  9.62% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust I) — These debentures mature in December 2032. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after December 4, 2007.

•  9.66% $6,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust II)  — These debentures mature in May 2033. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after May 15, 2008.

•  9.49% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust III) — These debentures mature in June 2034. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after June 17, 2009.

Contractual Obligations and Commitments

The following table summarizes information about our contractual obligations. The minimum future payments, including anticipated interest, under these agreements as of December 31, 2007 are as follows:

									2012 and
	2008		2009		2010		2011		Thereafter		Total
	(Dollars in thousands)
Junior subordinated debt	$	2,691	$	2,755	$	2,755	$	2,755	$	95,694	$	106,650
Senior credit facility		1,563		1,563		22,061		—		—		25,187
Mortgage obligation		267		267		267		267		1,765		2,833
Operating leases		1,736		1,423		650		151		33		3,993
Unpaid loss and losses adjustment expense		65,116		37,726		24,806		14,987		29,629		172,264
Commitment to purchase other investments		759		—		—		—		—		759
Guaranteed employee salary and bonuses		747		—		—		—		—		747
FIN 48 liability		1,774		58								1,832
Total	$	74,653	$	43,792	$	50,539	$	18,160	$	127,121	$	314,265

The junior subordinated debt agreements require principal payments of $2.0 million in 2032, $6.0 million in 2033, $2.0 million in 2034 and $20.6 million in 2036. The Company is also contractually obligated to make $609,000 quarterly interest payments. The senior credit facility provides for a revolving credit line in the aggregate amount of $35.0 million maturing on July 1, 2010. At December 31, 2007, there was an outstanding balance of $21.3 million on the revolving credit line. The table reflects the interest and facility fee obligations which are due during the term of the revolving credit line and payment of the principal balance at maturity. The gross unpaid loss and loss adjustment expense payments were estimated based on historical payment patterns. However, future payments may be different than historical payment patterns. The commitment to purchase other investments is attributable to a limited partnership interest which may request further funding of up to $759,000 any time through June 2010.

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Effects of New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which redefines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The effects of adoption will be determined by the types of instruments carried at fair value in the Company’s financial statements at the time of adoption as well as the method utilized to determine their fair values prior to the adoption. Based on our current use of fair value measurements, the adoption of SFAS No. 157 on January 1, 2008 did not have a material effect on the results of operations or financial position of the Company.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. An entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157. The Company did not elect to measure any new instruments at fair value under SFAS No. 159, therefore the results of operations or financial position were not impacted.

In July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) which clarifies the uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 effective January 1, 2007

Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the potential economic loss principally arising from adverse changes in the fair value of financial instruments. We believe that interest rate risk and credit risk are the two types of market risk to which we are principally exposed.

Interest Rate Risk

Our investment portfolio consists principally of investment-grade, fixed-income securities, all of which are classified as available for sale. Accordingly, the primary market risk exposure to our debt securities is interest rate risk. In general, the fair market value of a portfolio of fixed-income securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in fixed-income securities increases or decreases along with interest rates. In addition, some of our fixed-income securities have call or prepayment options. This could subject us to reinvestment risk should interest rates fall and issuers call their securities, requiring us to reinvest at lower interest rates. We attempt to mitigate this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio to a defined range of three to four years. The effective duration of our portfolio as of December 31, 2007 was 3.7 years.

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The table below summarizes our interest rate risk illustrating the sensitivity of the fair value of fixed-income investments to selected hypothetical changes in interest rates as of December 31, 2007. The selected scenarios are not predictions of future events, but rather illustrate the effect that events may have on the fair value of the fixed-income portfolio and shareholders’ equity.

						Hypothetical Percentage
			Estimated			Increase (Decrease) in
Hypothetical Change in Interest Rates	Estimated		Change in						Shareholders’
As of December 31, 2007	Fair Value		Fair Value			Fair Value			Equity
	(Dollars in thousands)
200 basis point increase	$	184,726	$	(15,955	)		(8.0	)%		(10.6	)%
100 basis point increase		192,787		(7,894	)		(3.9	)%		(5.3	)%
No change		200,681		—			0.0	%		0.0	%
100 basis point decrease		208,305		7,624			3.8	%		5.1	%
200 basis point decrease		215,660		14,979			7.5	%		10.0	%

Credit Risk

An additional exposure to our fixed-income securities portfolio is credit risk. We attempt to manage our credit risk by investing primarily in investment-grade securities. In addition, we comply with applicable statutory requirements, which limit the portion of our total investment portfolio that we can invest in any one security. As of December 31, 2007, we were primarily invested in U.S. government securities, U.S. government agencies and investment-grade corporate bonds.

We are subject to credit risks with respect to our reinsurers. Although a reinsurer is liable for losses to the extent of the coverage which it assumes, our reinsurance contracts do not discharge our insurance companies from primary liability to each policyholder for the full amount of the applicable policy, and consequently our insurance companies remain obligated to pay claims in accordance with the terms of the policies regardless of whether a reinsurer fulfills or defaults on its obligations under the related reinsurance agreement. To mitigate our credit risk to reinsurance companies, we attempt to select financially strong reinsurers with an A.M. Best rating of “A−” or better and continue to evaluate their financial condition throughout the duration of our agreements.

Recently, the U.S. secondary mortgage market has experienced disruptions resulting from credit quality deterioration in a significant portion of loans originated, primarily to non-prime and sub-prime borrowers. Our investment portfolio includes investments in mortgage-backed and asset-backed securities. As of December 31, 2007, mortgage and asset-backed securities constituted approximately 28.8% of our fixed income portfolio. Only a small portion of these securities are secured by sub-prime mortgage collateral. These securities are adequately collateralized, AAA rated investment quality that we currently expect will continue to perform.

At December 31, 2007, amounts due us from reinsurers were $64.2 million. We believe all amounts recorded as due from reinsurers are recoverable.

Effects of Inflation

We do not believe that inflation has a material effect on our results of operations, except for the effect that inflation may have on interest rates and claims costs. We consider the effects of inflation in pricing and estimating reserves for unpaid losses and loss adjustment expenses. The actual effects of inflation on our results are not known until claims are ultimately settled. In addition to general price inflation, we are exposed to a long-term upward trend in the cost of judicial awards for damages, as well as short-term spikes in local prices attributable to increases in demand which may impact the severity of our losses in future periods.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Consolidated Financial Statements of North Pointe Holdings Corporation and the Report of Independent Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report at Item 15.

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North Pointe Holdings Corporation

Unaudited Consolidated Quarterly Results of Operations

Our results of operations may vary significantly from quarter to quarter depending on a number of factors, including seasonal variations in claims related to seasonal weather patterns, and market and economic conditions.

As a result of these factors, period-to-period comparison of our revenues and operating results may not be meaningful. You should not rely on these comparisons as indicators of future performance. We cannot assure you that quarterly results will not fluctuate, causing a material adverse effect on our business, results of operations and financial condition.

	Quarters Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2007			2007			2007			2007			2006			2006			2006			2006
	(Unaudited)
	(Dollars in thousands, except per share and ratio data)
Statement of Operations Data:
Revenues:
Gross premiums written	$	39,189		$	34,099		$	21,734		$	20,644		$	22,584		$	21,859		$	19,992		$	25,740
Net premiums written	$	35,964		$	31,116		$	19,693		$	20,635		$	17,456		$	10,038		$	14,830		$	18,713
Net premiums earned	$	28,797		$	31,106		$	17,611		$	16,665		$	15,072		$	16,157		$	17,789		$	17,633
Investment income, net		2,767			2,551			1,523			1,835			1,593			1,527			1,451			1,160
Net realized capital gains (losses)		2,545			281			246			248			36			85			27			(362	)
Fees and other income		2,806			2,954			607			282			456			268			304			341
Total revenues		36,915			36,892			19,987			19,030			17,157			18,037			19,571			18,772
Expenses:
Losses and loss adjustment expenses, net		17,884			17,448			9,754			8,462			6,429			6,065			9,895			8,485
Policy acquisition costs		1,574			9,456			5,396			5,237			4,340			4,647			4,875			5,174
Other underwriting and operating expenses		12,707			6,416			4,517			4,341			6,903			5,451			5,855			3,572
Interest expense		1,226			1,048			501			486			502			498			462			249
Total expenses		33,391			34,368			20,168			18,526			18,174			16,661			21,087			17,480
Income (loss) before discontinued operations and federal income tax expense (benefit)		3,524			2,524			(181	)		504			(1,017	)		1,376			(1,516	)		1,292
Federal income tax expense (benefit)		1,175			626			(204	)		158			(375	)		428			(491	)		448
Income from continuing operations		2,349			1,898			23			346			(642	)		948			(1,025	)		844
Net income from discontinued operations		1,504			909			2,300			996			1,056			1,216			1,496			783
Net income	$	3,853		$	2,807		$	2,323		$	1,342		$	414		$	2,164		$	471		$	1,627
Earnings Per Share Data:
Basic
Income from continuing operations(1)		0.26			0.21			(0.00	)		0.04			(0.07	)		0.10			(0.11	)		0.09
Income from discontinued operations(1)		0.17			0.10			0.25			0.11			0.12			0.13			0.16			0.09
Diluted
Income from continuing operations(1)		0.26			0.21			(0.00	)		0.04			(0.07	)		0.10			(0.11	)		0.09
Income from discontinued operations(1)		0.17			0.10			0.25			0.11			0.12			0.13			0.16			0.09
Key Financial Ratios:
Loss ratio		56.6	%		51.2	%		53.5	%		49.9	%		41.4	%		36.9	%		54.7	%		47.2	%
Expense ratio		45.2	%		46.6	%		54.4	%		56.5	%		72.4	%		61.5	%		59.3	%		48.7	%
Combined ratio		101.8	%		97.8	%		108.0	%		106.4	%		113.8	%		98.4	%		114.0	%		95.9	%

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(1) Earnings per share are computed independently for each quarter and the full year based upon respective average shares outstanding. Therefore, the sum of the quarterly earnings per share amounts may not equal the annual amounts reported.

Item 9.   CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None

Item 9A.   CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

The Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed with the objective of providing reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives.

An evaluation was performed by management, with the participation of the Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, the Company’s management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control-Integrated Framework, management concluded that the internal control over financial reporting was effective as of December 31, 2007.

Because of its inherent limitations, internal control over the financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Item 9B.   OTHER INFORMATION.

None.

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Item 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

DIRECTORS AND EXECUTIVE OFFICERS

The Board currently consists of eight members divided into three classes serving staggered terms. Under the Company’s Corporate Governance Policies, a majority of the Company’s directors must not be officers or employees of the Company or its subsidiaries. Officers of the Company serve at the pleasure of the Board. The directors, executive officers and nominees for director of the Company are as follows:

Name	Age	Title	Term Ending
Joon S. Moon	70	Director		2010
B. Matthew Petcoff	47	Chief Operating Officer, Executive Vice President, Secretary and Director		2010
Joseph D. Sarafa	53	Director		2010
Richard J. Lindberg	58	Director		2008
Jorge J. Morales	53	Director		2008
James G. Petcoff	52	Chief Executive Officer, President and Chairman of the Board		2008
Julius A. Otten	68	Director		2009
R. Jamison Williams, Jr.	66	Director		2009
John H. Berry	65	Treasurer
Paul B. Deemer	33	Vice President and Chief Actuary
Bradford T. Lyons	56	Senior Vice President — Underwriting
L. Matthew MacLean	37	Senior Vice President — Claims
Brian J. Roney	43	Chief Financial Officer and Senior Vice President — Finance

Dr. Joon S. Moon has served as a director since June 2002. Since 1969, Dr. Moon has been the Chairman and Chief Executive Officer of Rooto Corporation, a manufacturer of consumer products including industrial and household chemicals. Since 1996, he has also served as the Chairman and Chief Executive Officer of Star Pacific, Inc., which also manufactures industrial and household chemicals. In addition, from August 2000 through August 2004, he served as a director of Rentrak Corp. a Nasdaq-listed company based in Portland, Oregon that leases videocassettes, DVDs and video games to video specialty stores and other retailers. Dr. Moon graduated with a B.S. degree in Chemical Engineering from Michigan State University in 1960 and a Ph.D. degree in Chemical Engineering from the University of California, Berkeley in 1963.

B. Matthew Petcoff has 18 years of experience in the insurance industry. He has served as our Chief Operating Officer and Executive Vice President since January 13, 2005 and as our Secretary since 2001. He joined North Pointe Insurance and North Pointe Financial in 1989 as Operations Manager, and has held numerous positions with our subsidiaries. Before May 1989, Mr. Petcoff served as a special projects engineer for Dow Corning Corporation, where his duties consisted of supervising aspects of new product development, product reliability and process engineering. He graduated with a B.S. degree from Michigan State University in 1983 and a M.B.A. degree from the University of Detroit in 1991. Mr. Petcoff is the brother of James G. Petcoff.

Joseph D. Sarafa has served as a director since our September 2005 initial public offering. Mr. Sarafa was admitted to the State Bar of Michigan in 1983 and has practiced law for 21 years. Since 2002, he has been of counsel with the law firm of Cummings, McClorey, Davis & Acho, P.L.C. From 1986 through 2002, he was the President of the Associated Food Dealers of Michigan. Mr. Sarafa currently serves as an advanced master gardener volunteer, is a member of the Economic Club of Traverse City Scholarship Committee and serves on the Traverse City Chamber Small Business Council. He has previously served on the Eastern Market Advancement Coalition, the Michigan Liquor Control Commission Customer Advisory Committee, Southfield Municipal Building Authority, Detroit Regional Chamber, Southfield Tax Increment Finance Authority, Western Michigan University Food Marketing

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Program and University of Detroit President’s Cabinet. Mr. Sarafa graduated with a B.S. degree from The University of Michigan in 1977 and a J.D. degree from the University of Detroit School of Law in 1982.

Richard J. Lindberg has served as a director since July 2001. He has also served as a director of each of North Pointe Insurance and North Pointe Financial since 2000, North Pointe Casualty Insurance since 2001, and a director of Home Pointe Insurance since February 2005. Since 1998, he has been the Vice President Sales/Marketing of CNI, Inc., a company that manufactures and distributes trim for automobiles. Mr. Lindberg graduated with a B.A. degree from Northern Michigan University in 1970.

Jorge J. Morales has served as a director since July 2001. He also has served as a director of North Pointe Insurance and North Pointe Financial since 1988, North Pointe Casualty Insurance since 2001, and a director of Home Pointe Insurance since February 2005. Since 1998, he has been the President and Chief Executive Officer of CNI, Inc., a company that manufactures and distributes trim for automobiles. He has also served as the President of two employee staffing organizations: MMS, Inc. since 1997, and HR Alliance, Inc. since 2003. Mr. Morales graduated with a B.A. degree in Accounting from Oakland University in 1979.

James G. Petcoff has 29 years of experience in the insurance industry. He has been our President and a director since 2001 and our Chief Executive Officer and Chairman of the Board since January 13, 2005. Mr. Petcoff founded North Pointe Insurance and North Pointe Financial in 1986. He has been President, Chief Executive Officer and Chairman of the Board of North Pointe Financial since 1986. From 1999 to August 2004, he also has served as a director of Rentrak Corp., a Nasdaq-listed company based in Portland, Oregon that leases videocassettes, DVDs and video games to video specialty stores and other retailers. From 1980 to 1986, he served as an employee and in management positions at independent commercial insurance agencies. Mr. Petcoff graduated with a B.A. degree from Michigan State University in 1977, a M.B.A. degree from University of Detroit in 1980 and a J.D. degree from University of Detroit School of Law in 1992. He is the brother of B. Matthew Petcoff.

Julius A. Otten, CPA, has been a director since our September 2005 initial public offering. Beginning July 1999, Mr. Otten has acted as a consultant to the insurance industry. From July 1963 through June 1999, Mr. Otten was with KPMG LLP, serving as partner from July 1975 until his retirement in 1999. Mr. Otten serves as a director and chairman of the audit committees of Professionals Direct, Inc. (an insurance holding company traded on the OTCBB whose subsidiaries provide professional liability insurance and related services to attorneys and law firms in Michigan and other states) and of American Community Mutual Insurance Company (a Michigan domiciled multi-state health insurer). Mr. Otten graduated with a B.B.A. and M.B.A. from the Ross School of Business at The University of Michigan in 1962 and 1963, respectively.

R. Jamison Williams, Jr. has served as a director since June 2002. He was admitted to the State Bar of Michigan in 1972 and has practiced law for 35 years. Since 1973, he has been a shareholder and currently serves as the President of Williams, Williams, Rattner and Plunkett, P.C., a law firm in Birmingham, Michigan. He also serves as a director of several closely-held corporations, including Penske Corporation, Clarke Power Systems, Inc., Grindmaster Corporation, Nexlink Communications, Inc. and Unruh Fab, Inc. In addition, Mr. Williams serves on the boards of several nonprofit and educational organizations, including Michigan Opera Theater (currently Chairman of the Board), Detroit Symphony Orchestra, William Beaumont Hospital, The Jamison Williams Foundation and the University of Michigan’s Center for Hearing Disorders. Mr. Williams graduated with a B.A. degree from Princeton University in 1963 and a J.D. degree from The University of Michigan Law School in 1966.

John H. Berry, CPA, has 32 years of experience in the insurance industry and 37 years of experience as an accountant. He has served as our Treasurer since 2001 and was our Chief Financial Officer until May 2006. Mr. Berry joined us in 1993 as a General Manager and Treasurer of N.P. Premium Finance and was appointed Chief Financial Officer of North Pointe Financial later that year. Prior to joining us, Mr. Berry was Chief Financial Officer of O/E Management Services, Inc. from 1992 through 1993. Mr. Berry was employed by Kmart Corporation from 1976 through 1992, during which time he held numerous, primarily insurance-related positions, including President of KM Insurance Company, Kmart’s insurance subsidiary, and Risk Manager, Legal Department Staff. Prior to 1976, Mr. Berry held positions with Citizens Insurance Company and PricewaterhouseCoopers LLP. Mr. Berry earned a B.B.A./Accounting degree from Eastern Michigan University in 1967. He is a Certified Public Accountant.

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Paul B. Deemer has served as our Vice President and Chief Actuary since November 2006 and is responsible for reserving, ratemaking and reinsurance. Prior to joining us in 2006, he was an actuary with Acuity in Sheboygan, Wisconsin. Mr. Deemer received a B.S. degree from Eastern Michigan University in 1996. He is a Member of the American Academy of Actuaries and a Fellow of the Casualty Actuarial Society.

Bradford T. Lyons has 33 years of experience in the insurance industry. He has served as our Senior Vice President-Underwriting since January, 2005. Mr. Lyons joined North Pointe Insurance and North Pointe Financial in January 1992 as our underwriting manager. In 1993, he became Vice President of Underwriting, and Mr. Lyons has served in such capacity since that time. Prior to joining North Pointe Insurance, he served as a Branch Manager for Reliance Insurance Company from 1983 through 1992. Mr. Lyons joined The Insurance Company of North America in 1973. The Insurance Company of North America later merged with Cigna, where Mr. Lyons held various underwriting and management positions. Mr. Lyons graduated with a B.A. degree from Hope College in 1973.

L. Matthew MacLean has served as our Senior Vice President-Claims since January, 2005. Mr. McLean joined the claims department of North Pointe Insurance in 1998, was named Assistant Vice President-Claims in 1999, and Vice President-Claims in 2000. He manages the professional and paraprofessional staff that is responsible for handling claims filed against our insureds. From 1992 through 1998 he was employed as a claims adjuster by LVM Company, which in turn contracted him to North Pointe. Mr. MacLean graduated with a B.A. degree from Michigan State University in 1992 and a J.D. degree from University of Detroit School of Law in 1998. He was admitted to the State Bar of Michigan in 1998. He is the son of Lawrence V. MacLean, a director of North Pointe Financial and North Pointe Insurance.

Brian J. Roney has served as our Chief Financial Officer since May 2006 and as Senior Vice President-Finance since January, 2005. He joined North Pointe Financial in 1999 and was given responsibility for mergers and acquisitions, personal lines planning and business planning for special projects. He has served as North Pointe Financial’s Vice President-Finance since the fall of 2002. Before joining us in 1999, he worked for ten years in the securities industry. During that time, he was Director of Corporate Syndications with Roney and Company, a Michigan-based broker dealer (and its successors), where he specialized in mergers and acquisitions and offerings for investment banking clients. He was also a principal of Roney and Company prior to its sale in 1999. Mr. Roney graduated with B.S./B.A. degrees from the University of Notre Dame in 1986 and with a M.B.A. degree from the University of Detroit in 1988.

CORPORATE GOVERNANCE

The Board has adopted Corporate Governance Policies, a copy of which can be found at the Company’s web site, www.npte.com, in the Corporate Governance subsection of the Investor Relations section. These guidelines address, among other things, a director’s responsibilities, qualifications, including independence, compensation and access to management and advisors. The Nominating and Corporate Governance Committee is responsible for overseeing and reviewing these guidelines and recommending to the Board any changes to the guidelines.

The Board also has adopted a Board and All Employee Code of Business Conduct (together, the “Code”), which sets out basic principles to guide the actions and decisions of all of the Company’s employees, officers and directors. The Code, also available at the Company’s web site in the Corporate Governance subsection of the Investor Relations section, covers topics such as honesty, integrity, conflicts of interest, compliance with laws, corporate opportunities, and confidentiality, as well as numerous other topics. Waivers of the Code are discouraged, but any waiver that relates to the Company’s executive officers or directors may only be made by the Board or a Board committee and will be publicly disclosed on the Company’s website in the Corporate Governance subsection of the Investor Relations section.

A copy of the Company’s Committee charters, the Board and All Employee Code of Business Conduct and Corporate Governance Policies will be sent to any shareholder, without charge, upon written request sent to the Company’s executive offices: North Pointe Holdings Corporation, 28819 Franklin Road, Southfield, Michigan 48034.

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AUDIT COMMITTEE

The Company has a separately designated standing audit committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The members of the committee are Julius A. Otten, Richard J. Lindberg, and Joseph D. Sarafa. Mr. Otten is the Chairman of the Committee. The Board has determined that Julius A. Otten, Chairman of the audit committee, has the requisite education and experience to serve as the Board’s audit committee financial expert. Mr. Otten is independent, as such term is defined in the listing standards applicable to the Company.

Item 11.   EXECUTIVE COMPENSATION.

Overview of Compensation Philosophy and Program

The Compensation Committee of the Board of Directors (the “Committee”), composed entirely of independent directors, administers the executive compensation program for North Pointe Holdings Corporation and its subsidiary corporations (collectively, the “Company”). It also oversees the Company’s compensation and benefit plans and policies. It administers the Company’s stock plans (including reviewing and approving equity grants to employees). The Committee further reviews and approves annually all compensation decisions relating to the Principal Executive Officer, Principal Financial Officer, three other most highly compensated executive officers who received $100,000 or more in total compensation (collectively, the “Named Executive Officers”, or “NEO”), and the other executive officers of the Company.

The Committee is authorized under its charter to engage the services of outside advisors, experts and others. At this time, the Committee has not engaged the services of any such persons.

General Compensation Philosophy

The Committee believes that the compensation paid to executive officers should be closely aligned with the achievement of specific short-term, long-term and strategic goals by the Company. At the same time, the Committee also believes that such compensation must ensure that the Company can be successful in attracting and retaining key executives critical to its long-term success. Compensation should be structured to ensure that a significant portion of compensation opportunity is directly related to the Company’s stock performance and other factors that directly and indirectly influence shareholder value. To that end, it is the view of the Committee that the total compensation program for executive officers should consist of the following:

•  Base salaries;

•  Annual cash incentive awards;

•  Long-term, equity-based incentive compensation, primarily in the form of stock options; and

•  Certain other benefits.

The Committee considers recommendations from the Chairman and Chief Executive Officer (“CEO”) regarding total compensation for those executives reporting directly to him. Management provides to the Committee historical and prospective information with respect to the total compensation components for each executive officer.

Significant elements of the Company’s executive compensation program are set forth in the following materials (which are described in further details below):

•  Employment Agreements for CEO, James G. Petcoff, Chief Operating Officer (“COO”), B. Matthew Petcoff, and Chief Financial Officer (“CFO”), Brian J. Roney.

•  Annual Incentive Compensation Plan for NEO and other key employees.

•  Equity Incentive Plan for NEO, non-employee directors and other key employees.

In addition, the Company also provides certain other miscellaneous benefits, in form of perquisites, benefits, etc.

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Compensation Tally Sheets

The Company intends to continue its strategy of compensating its executives through base salary, discretionary bonuses, option awards and other benefits. Because of the Company’s use of option awards and because the Company’s annual cash incentive awards are linked to the Company’s return on equity, total executive compensation is significantly impacted by the performance of the Company. The Committee believes that the Company’s compensation is structured to ensure that there is an appropriate balance between the long-term and short-term performance of the Company, and also a balance between the Company’s financial performance and shareholder return. The Committee believes that the Company’s 2007 compensation to its NEO was consistent with its financial performance and the individual performance of each of the NEO, and also believes that the compensation was reasonable in its totality. Compensation tally sheets for each of the NEO were prepared for, and reviewed by, the Committee. These tally sheets affixed dollar amounts to all components of the NEO’s 2007 compensation, including current pay (salary and bonus), deferred compensation, outstanding equity awards, benefits, perquisites and potential change-in-control severance payments. The Committee has committed to review tally sheets at least on an annual basis.

Base Salaries

The base salaries of the NEO are reviewed on an annual basis, as well as at the time of a promotion or other change in responsibilities. Increases in salary are based on an evaluation of the individual’s performance and level of pay compared to industry. The 2007 salaries for the NEO reflect these principles. As of December 31, 2007, the base salaries for the CEO and the COO were $837,800 and $415,200, respectively. The base salary for the chief financial officer as of December 31, 2007 was $220,000. The base salaries for the remainder of the NEO are disclosed in the Summary Compensation Table. In determining base salaries, the Committee relied in part upon the 2007 base salary compensation survey issued by the Property Casualty Insurance Association of America. The Committee determined that the appropriate peer group for comparison purposes was the subset of 32 companies, out of 69 total companies, with a premium volume between $100 and $200 million. For 2007, the Committee was satisfied that the Company’s executive base salaries were within the peer group range.

Employment Agreements with Executive Officers

The Company entered into separate employment agreements, with each of the CEO, James G. Petcoff, and COO, B. Matthew Petcoff, in June 2005 for an initial term of five years, subject to automatic one-year extensions unless either party provides written notice of termination at least 90 days prior to the expiration of any term. Under these agreements, the Company agreed to pay base salaries of $750,000 and $367,000 to James G. Petcoff and B. Matthew Petcoff, respectively, subject to annual adjustments. Each of these executive officers may also receive additional amounts as participants in the Company’s Equity Incentive Plan, and otherwise as bonus, incentive or equity compensation as the Committee may determine in accordance with regular compensation practices. These officers were also entitled to receive other standard employee benefits and certain perquisites, including a car allowance and social or country club fees and dues.

These employment agreements provide that, for a period of 24 months following the termination of employment, each of James G. Petcoff and B. Matthew Petcoff may not compete with the Company or solicit its employees or customers. Further, each of the agreements provides that, during and after the term of employment, the executive officer will not disclose or improperly use confidential information relating to Company’s business.

If the Company terminates the employment of either James G. Petcoff or B. Matthew Petcoff without cause as defined in the applicable agreement, or if the executive officer terminates his employment for good reason following a change in control, as those terms are defined in the applicable agreement, the executive officer will be entitled to receive the greater of (i) his base salary for the remainder of the contract term or (ii) an amount equal to three times the sum of his current base salary, plus 50% of the cash bonus paid or due the executive for the last fiscal year. If the Company terminates the employment of either James G. Petcoff or B. Matthew Petcoff for cause, as defined in the applicable agreement, or if the executive officer resigns, the executive officer will be entitled to receive accrued compensation. If either James G. Petcoff or B. Matthew Petcoff terminates his employment for cause, as defined in the applicable agreement, he will be entitled to his base salary for the remainder of the contract

64

term, plus an amount equal to three times his cash bonus for the previous calendar year. If either James G. Petcoff or B. Matthew Petcoff dies or becomes disabled, as defined in the applicable agreement, the executive (or his estate or personal representative) will be entitled to receive his monthly base salary, less any disability payments from insurance for which we have paid the premiums, until the earlier to occur of the end of the contract term or the executive reaching the age of 70, plus an amount equal to three times his cash bonus for the previous calendar year.

For additional information regarding payments upon a change of control, please see the discussion under “Potential Payments Upon Termination or Change-in-Control-Employment Agreements” beginning on page 15.

If the proposed merger of the Company and a subsidiary of QBE Holdings, Inc. (“Buyer”) is approved and the transaction closes, Mr. James G. Petcoff’s employment agreement described above will be terminated and replaced by a separation and consulting agreement by and among the Company, Buyer, and Mr. James G. Petcoff dated as of January 3, 2008. Pursuant to the separation and consulting agreement, Mr. James G. Petcoff has agreed that, if the transaction closes, he will resign his employment and all positions he holds with the Company and waive all rights to his previous employment agreement described above, including but not limited to, the termination and change of control payments to which he would otherwise be entitled. Post-closing, Mr. James G. Petcoff will be engaged as a consultant to the surviving corporation for a term of up to two years. During the term of the consulting agreement, Mr. James G. Petcoff is entitled to receive payments of $50,000 per month for his consulting services. The consulting agreement also contains non-compete and non-solicitation clauses, under which Mr. James G. Petcoff is prohibited from competing with the surviving corporation for a period of two years after expiration of the two-year consulting term. In consideration for these restrictions, Mr. James G. Petcoff is entitled to receive monthly payments of $10,000 for the duration of the non-compete and non-solicitation period.

Evaluation of CEO/CFO and NEO Performance in 2007

The Committee does not rely solely on predetermined formulas or a limited set of criteria when it evaluates the performance of the Company’s NEO.

In 2007, the Committee considered management’s continuing achievement of its short and long-term goals versus its strategic imperatives. These goals, among others, included:

•  The Company’s return on equity;

•  Development, communication to shareholders and employees, and implementation of a financial plan that is designed to increase shareholder value;

•  Development and training of divisional managers and staff;

•  Evaluation and implementation of strategic acquisitions.

The Committee based their compensation decisions for the CEO on their assessment of the Company’s performance and his performance based on the objectives listed above.

The Company’s goal is to achieve a 15% return on equity. The Company achieved approximately 11.7% return on equity in 2007. For 2007, the 15% return on equity goal represented a significant stretch for the organization given the dynamic business environment, the tightness in the reinsurance market and the continued effect from the cancellation of significant commercial business in Florida in 2006. Also evaluated by the Committee in assessing management’s performance were potential returns on new initiatives and the expansion of the Company into new markets both in terms of geography and products. The Committee felt that the goal of effectively communicating strategy and financial results to increase shareholder value was met. The Company completed the acquisition of Capital City Holding Company, Inc. in 2007. Cash bonuses paid by the Company to its CEO and COO for 2007 were in the range of 12.01-13% return on equity which is 80% of base salary for the CEO and 55% of the base salary for COO, and for the Company’s other NEOs cash bonuses were approximately 40% of base salary. These amounts are well below the payout levels (100% of base salary for the CEO, 65% of base salary for the COO and 50% of base salary for the other NEOs) which would have been associated with achieving a 15% return on equity.

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Annual Incentive Compensation Plan

On June 10, 2005, the Committee adopted and approved the Annual Incentive Compensation Plan, (the “Incentive Plan”), to provide an incentive compensation system for the Company’s key employees consistent with the Company’s goals and objectives as previously described. The Incentive Plan is intended to provide for the payment of amounts that qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code.

Awards

Under the Incentive Plan, the Committee selects the key employees who will become participants prior to the commencement of each fiscal year (or such later date as may be permitted under Section 162(m)). The Committee can also select an employee to become a participant mid-year if an employee is hired or promoted after the first day of the year.

The Committee fixes a target cash award for each participant at the same time that it selects the eligible employee participants, provided that no participant may receive a payment under the Incentive Plan in any fiscal year of the Company of more than $5.0 million. A participant’s target cash award may be specified as a percentage of compensation, a fixed dollar amount or in any other manner the Committee determines. Compensation generally means the participant’s annualized base salary as of the end of the performance period. The Committee may, at the time it grants an award, include or exclude types of compensation for purposes of determining a participant’s target award.

The Committee also determines, with respect to each participant, the performance category or categories that will be applied to determine the size of the participant’s final performance award and the performance period over which those categories will be determined. The Incentive Plan specifies that the Committee may use any one or more of the financial performance categories set forth in the Incentive Plan for any one or more participants. In addition to the financial performance categories, the Committee may establish other performance measures for awards not intended to comply with Section 162(m), including individual performance measures and subjective performance targets.

For each performance category that the Committee selects as the basis for potential awards, the Committee also establishes the specific target(s) that must be met with respect to each such category. The target(s) may be established as a linear scale, a step scale, a change (increase or decrease) over a period of time, measures in the alternative, or any other type of function or form of measurement that the Committee determines. The Committee must select the manner of measuring the target so that, at the end of the performance period, a performance percentage may be objectively calculated for any given level of actual performance within that category during the performance period.

Following the end of the performance period for an award, the Committee calculates the performance award amount for the participant. The Committee must approve the calculations and may, in its sole discretion, increase (unless the participant is subject to Section 162(m)) or reduce the amount of the formula cash award by up to 25%. The maximum performance award, less any reduction determined by the Committee, equals the final performance award payable to such participant for the applicable performance period.

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For 2007 and 2008, the Company’s performance criteria and formula payout levels are as follows:

	Chief Executive	Chief Operating
Return on Equity	Officer	Officer	Vice Presidents
<5%	No Bonus	No Bonus	No Bonus
5.01% - 6.0%	10% of Salary	10%	5%
6.01% - 7.0%	20% of Salary	20%	10%
7.01% - 8.0%	30% of Salary	30%	15%
8.01% - 9.0%	40% of Salary	35%	20%
9.01% - 10.0%	50% of Salary	40%	25%
10.01% - 11.0%	60% of Salary	45%	30%
11.01% - 12.0%	70% of Salary	50%	35%
12.01% - 13.0%	80% of Salary	55%	40%
13.01% - 14.0%	90% of Salary	60%	45%
14.01% - 15.0%	100% of Salary	65%	50%
15.01% - 16.0%	110% of Salary	70%	55%
16.01% - 17.0%	120% of Salary	75%	60%
17.01% - 18.0%	130% of Salary	80%	65%
18.01% - 19.0%	140% of Salary	85%	70%
19.01% - 20.0%	150% of Salary	90%	75%

(1)	Return on consolidated equity, calculated as consolidated net income after bonus pool accrual divided by prior year-end consolidated net worth.
(2)	Bonus pool accrual increases by 10% of salary for each percentage point of return on equity over 20%.

Long-Term Incentive Compensation

The Committee believes that equity-based compensation ensures that Company’s executive officers have a continuing stake in the long-term success of the company.

On June 10, 2005 the Company’s board of directors adopted, and on July 8, 2005, its shareholders approved, the Equity Incentive Plan (the “EIP”), to enable the Company to attract, retain and motivate key employees and directors through equity-based compensatory awards including restricted stock awards, performance shares, stock options and stock appreciation rights.

Shares Reserved

The maximum number of shares of common stock reserved for issuance under the EIP is 10% of the then-current number of shares of common stock issued and outstanding. These shares may be awarded as deemed appropriate by the Committee.

Limitations on Awards

During any calendar year, key employees are limited in the number of grants they may receive under the EIP. No key employee may receive during any year options for more than 200,000 shares, stock appreciation rights with respect to more than 200,000 shares, more than 200,000 shares of restricted stock and/or an award for more than 200,000 performance shares.

Administration

The Committee administers the EIP which provides it with the authority to, among other things, select plan participants, determine the type and amount of awards, determine when the awards will be granted, determine award terms, fix all other conditions of any awards, interpret the EIP and any plan awards, and delegate certain of its authority and duties.

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Eligibility

Key employees of the Company and subsidiaries, and non-employee directors of the Company may participate in the EIP.

The Plan also provides for awards of restricted stock to both key employees and to non-employee directors, entitling the recipients to acquire or receive shares of Company common stock that are subject to those vesting, transferability, forfeiture, repurchase and other conditions as the Committee may determine.

Restricted Stock Awards to Key Employees

The maximum number of shares of restricted stock awards that may be granted to key employees under the EIP is 500,000. Restricted shares granted to key employees are subject to restrictions as determined by the Committee (including limitation on voting rights and the right to receive dividends). The Committee also determines whether any dividends paid with respect to the restricted shares will be held in escrow or otherwise deferred. The restricted shares will be evidenced as determined by the Committee and may themselves be held in escrow pending the lapse of all restrictions. Any stock certificates issued with respect to restricted shares will contain legends describing the restrictions on the stock. At the end of the restriction period, stock certificates without restrictive legends will be delivered to the key employees, or, if stock certificates with legends were previously issued, the legends on these certificates will be removed. If a key employee’s employment terminates for any reason during the restriction period, the employee will forfeit all shares of restricted stock still subject to restriction, unless the Committee determines that it is in the Company’s best interest to waive the restrictions.

Performance Shares

The EIP provides that the Company may grant up to 500,000 performance shares to its key employees, subject to amendment by the Committee as set forth in the EIP. Performance shares entitle the recipient to acquire shares of the common stock upon the attainment of specified performance goals as described in the EIP. The Committee may determine in its discretion the specific performance goals applicable under each performance share award, the periods during which performance is to be measured and all other limitations and conditions applicable to the award. The Committee may alter performance goals, subject to shareholder approval, to qualify the performance shares for the performance-based exception contained in Section 162(m) of the Internal Revenue Code. The Committee may also grant performance shares that do not meet this performance-based exception. Following the end of the performance period, if the performance goals have been met, certificates representing the number of shares equal to the performance shares payable shall be delivered to the key employee.

Stock Options

Key employees may be granted stock options under the EIP that are intended to qualify as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, or stock options that are not intended to so qualify. Under the EIP, the Company may grant incentive stock options for no more than 500,000 shares. The Committee may fix the term and vesting schedule of each stock option, but no incentive stock option will be exercisable more than 10 years after the date of grant. The exercise price of each incentive stock option must not be less than 100% of the fair market value of our common stock on the grant date. The exercise price of each stock option granted under the EIP will be paid in the form(s) specified by the Committee, and may be made in a single payment, in installments, or on a deferred basis, as prescribed by the Committee. Stock options are not transferable except by will or the laws of descent and distribution.

For the year 2007, the Committee awarded stock options to the NEO and other executives. The options were granted on September 12, 2007 (the “Grant Date”), exercisable at the Grant Date closing price of $10.86 per share. The options vest equally over a period of five years, except that they vest earlier upon the death or disability of the optionee. The options will also vest in connection with the closing of the merger with a subsidiary of Buyer. The options expire on the tenth anniversary of the grant date, unless they expire earlier due to termination of employment. In 2007, the Committee awarded 20,000, 10,000 and 5,000 option shares to James G. Petcoff, B. Matthew Petcoff and Brian J. Roney, respectively.

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OTHER BENEFITS

Perquisites

There were none to report as of December 31, 2007 due to the instituted changes in 2007. As was discussed in last year’s Compensation Discussion & Analysis, the Committee instituted certain changes to executive compensation. These changes were designed to further enhance transparency and to strengthen the goal of aligning pay to performance. The Committee eliminated the automobile lease, the associated automobile expenses, club dues and internet access expenses for James G. Petcoff, B. Matthew Petcoff and Bradford T. Lyons. In lieu thereof, the Committee increased their base pay salaries by the amounts of $68,300, $43,200 and $27,750, respectively.

Severance Payments

See “Potential Payments Upon Termination or Change-in-Control” for a description of potential payments and benefits to the named executive officers under compensation plans and arrangements described above upon termination of employment or a change of control of the Company.

Employment Agreements.  Each of Messrs. James G. Petcoff and B. Matthew Petcoff is party to an employment agreement with the Company, initially entered into in 2005, that provides for certain severance benefits. Brian J. Roney is party to a termination agreement, entered into on November 2007, which provides certain severance benefits.

Change of Control Provisions.  The employment agreements with both Messrs. Petcoff’s and Brian J. Roney contain change of control provisions. The Committee believes that such provisions are in the best interests of the Company and its shareholders to ensure the continued dedication of such executives, notwithstanding the possibility, threat or occurrence of a change of control. The Committee believes it is imperative to diminish the inevitable distraction of such executives by virtue of the personal uncertainties and risks created by a pending or threatened change of control, and to provide such executives with compensation and benefits arrangements upon a change of control that ensure that such executives’ compensation and benefits expectations will be satisfied and such compensation and benefits are competitive with those of other corporations.

A fundamental feature of the provision in both Messrs. Petcoff’s agreements that is different from some change of control agreements is that most of the benefits have a “double-trigger,” which means that two events must occur for payments to be made (a change of control and a significant shift, within 24 months of the change in control, in the nature and scope of the executive’s duties prior to the change in control, giving the executive the right to terminate his employment and to receive severance payments as though the Company had terminated him without cause). This is consistent with the purpose of the change in control provisions, which is to provide executives with a level of financial protection upon loss of employment.

Mr. Roney’s severance agreement provides that the Company agrees to provide post-termination salary in the event the employment of Mr. Roney is terminated for any reason within 120 days of a change in control.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors has reviewed and discussed the above Compensation Discussion & Analysis with management and, based on such review and discussion, has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s proxy statement.

The Compensation Committee:

Mr. Jorge J. Morales, Chair

Mr. Richard J. Lindberg

Mr. R. Jamison Williams, Jr.

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SUMMARY COMPENSATION TABLE

The following table sets forth for each of the NEO: (i) the dollar value of base salary and bonus earned during the year ended December 31, 2007; (ii) the aggregate grant date fair value of option awards granted during the year, computed in accordance with FAS 123(R); (iii) all other compensation for the year; and, (iv) the dollar value of total compensation for the year. None of the NEO received stock awards or non-equity incentive plan compensation in 2007 or benefited from any change in pension value or non-qualified deferral compensation earnings during 2007.

													Change in
													Pension Value
													and
											Non-Equity		Nonqualified
							Stock		Option		Incentive Plan		Deferred		All Other
			Salary		Bonus		Awards		Awards		Compensation		Compensation		Compensation		Total
Name and Principal Position	Year		($)(a)		($)(b)		($)		($)(c)		($)		Earnings ($)		($)(d)		($)(e)
James G. Petcoff,		2007	$	855,800	$	670,240		—		—		—		—			$	1,526,040
CEO, President, Chairman of the Board
Brian J. Roney,		2007	$	229,000	$	88,000		—	$	122,400		—		—			$	439,400
CFO
B. Matthew Petcoff,		2007	$	433,200	$	228,360		—	$	122,400		—		—			$	783,960
COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		2007	$	247,750	$	91,900		—	$	122,400		—		—			$	462,050
Senior Vice President
L. Matthew MacLean,		2007	$	232,000	$	88,000		—	$	122,400		—		—		—	$	442,400
Senior Vice President

Explanatory Notes for Columns:

(a)	The dollar value of base salary earned during the fiscal year.
(b)	The dollar value of bonus earned during the fiscal year.
(c)	The aggregate grant date fair value of option awards (with or without tandem SARs) computed in accordance with FAS 123(R). On September 12, 2007, certain employees were granted options to purchase shares of the Company’s common stock for $10.86 per share, subject to vesting. The options become exercisable in equal 20% installments on each anniversary of the grant date, commencing with the first anniversary thereof. The options expire on the tenth anniversary of the grant date or 90 days following termination of employment, whichever occurs first. The fair value of the stock options was estimated at the date of grant using the Black-Scholes option pricing model and employing the following assumptions:

Fair Value of underlying common stock:	$10.86/share
Weighted average life of options:	6.5 years
Risk-free interest rate:	4.11%
Dividend yield:	0.00%
Weighted average volatility assumption:	27.60%

(d)	All other compensation, including perquisites.
(e)	The dollar value of total compensation for the year, equal to the sum of columns (a) through (d).

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GRANTS OF PLAN-BASED AWARDS

The following table sets forth information regarding all incentive plan awards that were made to the named executive officers during 2007, which include only equity-based incentive awards. The information supplements the dollar value disclosure of stock, option and non-stock awards in the Summary Compensation Table by providing additional details about such awards. Equity incentive-based awards are subject to a performance condition or a market condition as FAS 123(R) defines those terms.

															All		All Other
															Other		Option		Exercise
			Estimated						Estimated						Stock		Awards:		or Base
			Under						Future						Awards:		Number of		Price of
			Non-Equity		Future				Under Equity				Payout		Number of		Securities		Option
	Grant		Plan Awards		Payouts		Incentive		Awards		Incentive		Plans		Shares		Underlying		Awards
	Date		Threshold		Target		Maximum		Threshold		Target		Maximum		of Stock		Options (#)		($/Sh)
Name	(a)		($)		($)		($)		(#)		(#)		(#)		or Units		(b)		(c)
James G. Petcoff,		09/12/07		—		—		—		—		—		—		—		—		—
CEO, President, Chairman of the Board
Brian J. Roney,		09/12/07		—		—		—		—		—		—		—		30,000		10.86
CFO
B. Matthew Petcoff,		09/12/07		—		—		—		—		—		—		—		30,000		10.86
COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		09/12/07		—		—		—		—		—		—		—		30,000		10.86
Senior Vice President
L. Matthew MacLean,		09/12/07		—		—		—		—		—		—		—		30,000		10.86
Senior Vice President

Explanatory Notes for Columns:

(a)	The grant date for equity-based option awards.
(b)	The number of shares underlying options granted in the fiscal year.
(c)	The per-share exercise or base price of the options granted in the fiscal year.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table sets forth information on outstanding option and stock awards held by the NEO at December 31, 2007, including the number of shares underlying both exercisable and unexercisable portions of each stock option as well as the exercise price and expiration date of each outstanding option.

	Option Awards										Stock Awards
																	Equity
																	Incentive
																	Plan
																	Awards:
	Number of				Equity										Equity Incentive		Market or
	Securities		Number of		Incentive Plan								Market Value		Plan Awards:		Payout Value
	Underlying		Securities		Awards Number						Number of		of Shares or		Number of		of Unearned
	Unexercised		Underlying		of Securities						Shares or Units		Units or Other		Unearned		Shares, Units
	Options		Unexercised		Underlying		Option		Option		of Stock That		Rights That		Shares, Units or		or Other
	(#)		Options (It)		Unexercised		Exercise		Expiration		Have Not		Have Not		Other Rights That		Rights That
	Exercisable		Unexercisable		Unearned		Price		Date		Vested (#)		Vested		Have Not		Have Not
Name	(a)		(b)		Options (II)		($)(c)		(d)		(e)		(f)		Vested (II)		Vested ($)
James G. Petcoff,		40,000		60,000		—		12.00		9/28/15		—		—		—		—
CEO, President, Chairman of the Board
James G. Petcoff,		4,000		16,000		—		10.50		11/27/16		—		—		—		—
CEO, President, Chairman of the Board
Brian J. Roney,		10,000		15,000		—		12.00		9/28/15		—		—		—		—
CFO
Brian J. Roney,		1,000		4,000		—		10.50		11/27/16		—		—		—		—
CFO
Brian J. Roney,		—		30,000		—		10.86		09/12/07		—		—		—		—
CFO
B. Matthew Petcoff,		20,000		30,000		—		12.00		9/28/15		—		—		—		—
COO, Executive Vice President, Secretary, Director
B. Matthew Petcoff,		2,000		8,000		—		10.50		11/27/16		—		—		—		—
COO, Executive Vice President, Secretary, Director
B. Matthew Petcoff,		—		30,000		—		10.86		09/12/07		—		—		—		—
COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		14,000		21,000		—		12.00		9/28/15		—		—		—		—
Senior Vice President
Bradford T. Lyons,		1,400		5,600		—		10.50		11/27/16		—		—		—		—
Senior Vice President
Bradford T. Lyons,		—		30,000		—		10.86		09/12/07		—		—		—		—
Senior Vice President
L. Matthew MacLean,		12,000		18,000		—		12.00		9/28/15		1,500	$	16,500		—		—
Senior Vice President
L. Matthew MacLean,		1,200		4,800		—		10.50		11/27/16		—		—		—		—
Senior Vice President
L. Matthew MacLean,		—		30,000		—		10.86		09/12/07		—		—		—		—
Senior Vice President

Explanatory Notes for Columns:

(a)	On an award-by-award basis, the number of shares underlying unexercised options that are exercisable.
(b)	On an award-by-award basis, the number of shares underlying unexercised options that are unexercisable.
(c)	For each instrument reported in columns (a) and (b), the exercise price.
(d)	For each instrument reported in columns (b) (c) and (d), as applicable, the expiration date.
(e)	The total number of shares of stock that have not vested and that are not reported.
(f)	The aggregate market value of shares of stock that have not vested and that are not reported in column.

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OPTION EXERCISES AND STOCK VESTED

The following table sets forth information regarding each exercise of stock options and vesting of restricted stock during 2007 for each of the named executive officers on an aggregated basis:

	Option Awards				Stock Awards
	Number of				Number of
	Shares Acquired		Value Realized		Shares Acquired		Value Realized
	on Exercise		on Exercise		on Vesting		on Vesting
Name	(#)		($)		(#)(a)		($)(b)
James G. Petcoff,		0		—		—		—
CEO, President, Chairman of the Board
Brian J. Roney,		0		—		—		—
CFO
B. Matthew		0		—		—		—
Petcoff, COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		0		—		—		—
Senior Vice President
L. Matthew MacLean,		0		—		500	$	5,430
Senior Vice President

Explanatory Notes for Columns:

(a)	The number of shares of stock that have vested.
(b)	The aggregate dollar value realized upon vesting of stock (i.e., the number of shares times the market price of the underlying shares on the vesting date), or upon the transfer of an award for value.

PENSION BENEFITS

The following table sets forth the actuarial present value of each named executive officer’s accumulated benefit under each defined benefit plan, assuming benefits are paid at normal retirement age based on current levels of compensation. The table also shows the number of years of credited service under each such plan, computed as of the same pension plan measurement date used in the Company’s audited financial statements for the year ended December 31, 2007. The table also reports any pension benefits paid to each named executive officer during the year.

			Number of Years		Present Value of		Payments During
			Credited Service		Accumulated		Last Fiscal Year
Name	Plan Name		(#)		Benefit ($)		($)
James G. Petcoff,		N/A		N/A		N/A		N/A
CEO, President, Chairman of the Board
Brian J. Roney,		N/A		N/A		N/A		N/A
CFO
B. Matthew Petcoff,		N/A		N/A		N/A		N/A
COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		N/A		N/A		N/A		N/A
Senior Vice President
L. Matthew MacLean,		N/A		N/A		N/A		N/A
Senior Vice President

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NON-QUALIFIED DEFERRED COMPENSATION

The following table sets forth annual executive and company contributions under non-qualified defined contribution and other deferred compensation plans, as well each named executive officer’s withdrawals, earnings and fiscal-year end balances in those plans:

	Executive		Registrant		Aggregate		Aggregate		Aggregate
	Contributions		Contributions in		Earnings		Withdrawals/		Balance at
Name	in Last FY ($)		Last FY ($)		in Last FY ($)		Distributions ($)		Last FYE ($)
James G. Petcoff,		N/A		N/A		N/A		N/A		N/A
CEO, President, Chairman of the Board
Brian J. Roney,		N/A		N/A		N/A		N/A		N/A
CFO
B. Matthew Petcoff,		N/A		N/A		N/A		N/A		N/A
COO, Executive Vice President, Secretary, Director
Bradford T. Lyons,		N/A		N/A		N/A		N/A		N/A
Senior Vice President
L. Matthew MacLean,		N/A		N/A		N/A		N/A		N/A
Senior Vice President

DIRECTOR COMPENSATION

The following table sets forth information regarding the compensation received by each of the Company’s non-employee directors during The Year Ended December 31, 2007;

									Change in
									Pension
	Fees								Value and
	Earned						Non-Equity		Non-qualified
	or Paid		Stock		Option		Incentive Plan		Deferred		All Other
	in Cash		Awards		Awards		Compensation		Compensation		Compensation		Total
Name	($)(a)		($)(1)(b)		($)		($)		Earnings ($)		($)(c)		($)(d)
Richard J. Lindberg	$	35,000	$	11,110		—		—		—		—	$	46,110
Joon S. Moon	$	34,000	$	11,110		—		—		—	$	16,620	$	61,720
Jorge J. Morales	$	27,500	$	11,110		—		—		—		—	$	38,610
R. Jamison Williams, Jr.	$	28,000	$	11,110		—		—		—	$	30	$	39,140
Julius A. Otten	$	65,000	$	11,110		—		—		—		—	$	76,110
Joseph D. Sarafa	$	27,000	$	11,110		—		—		—	$	1,287	$	39,397

Explanatory Notes for Columns:

(a)	The aggregate dollar amount of all fees earned or paid in cash for services as a director, including annual retainer fees, committee and/or chairmanship fees, and meeting fees.
(b)	For awards of stock, the aggregate grant date fair value computed in accordance with FAS 123(R). See footnote (1).
(c)	All other compensation for the covered fiscal year that could not properly be reported in any other column. “All other compensation” includes consulting fees and expenses.
(d)	The dollar value of total compensation for the covered fiscal year, equal to the sum of all amounts reported in columns (a) though (c).

(1) Non-employee directors are also entitled to receive grants of shares of restricted stock pursuant to the Equity Incentive Plan. These shares vest 24 months following the date of grant provided the director is still in

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service with the Company on the vesting date. Notwithstanding the foregoing, the shares vest earlier upon the death or disability of the director, or upon the occurrence of a Change of Control, as defined in the Plan. The directors are automatically granted a number of shares of restricted stock equal to the lesser of (i) 1,000 shares and (ii) the number of shares determined by dividing $15,000 by the fair market value of a share on the date of grant, on the day following the annual meeting of the shareholders, except that those non-employee directors who are newly elected at a shareholders meeting will not be eligible to receive restricted stock until the day following the next annual meeting of the shareholders. In 2007, restricted shares of 1,000 each were awarded to Mr. Moon, Mr. Lindberg, Mr. Sarafa, Mr. Williams, Mr. Morales, and Mr. Otten, under the Equity Incentive Plan.

Each non-employee member of the board of directors receives an annual retainer fee of $12,000 and additional fees of $1,000 for each board meeting and committee meeting attended. Each committee chair receives an additional fee of $500 for each committee meeting attended. The Audit Committee Chair, Julius A. Otten, receives $6,000 per quarter for his or her added responsibilities as Audit Committee Chair. This compensation was approved by the Compensation Committee on March 9, 2007, retroactive to July 1, 2006. Directors who are also employees do not receive any compensation for serving as directors. Directors also receive reimbursement for their reasonable travel and lodging expenses if they do not live in the area where the meeting is held, up to a maximum of $1,500 per director per meeting. In addition, Mr. Moon received $16,620 for consulting services relating to a one-time project involving the evaluation of a potential investment by the Company.

Potential Payments Upon Termination or Change-in-Control

The following section describes potential payments and benefits to the named executive officers under the Company’s compensation and benefit plans and arrangements upon termination of employment or a change of control of the Company.

Messrs. James G. Petcoff, B. Matthew Petcoff, and Brian J. Roney are each a party to an employment agreement, containing change of control provisions, with the Company. See “Employment Agreements with Executive Officers” on page 15. None of the other named executive officers has an employment agreement with the Company.

Certain of the Company’s compensatory plans contain provisions regarding the acceleration of vesting and payment upon specified termination events. In addition, the Compensation Committee may authorize discretionary severance payments to the named executive officers upon termination.

Company Share-Based Plans

Equity Incentive Plan

The Committee is permitted to determine the terms of any awards as well as to determine how awards under the plan may be settled, exercised, cancelled, forfeited, suspended or deferred. If a participant’s employment is terminated, the treatment of any award under the plan is determined as provided in the relevant award agreement. The stock option award agreements issued by the Company provide that all outstanding options vest upon the death or disability of a participant. The vested portion of the award will terminate immediately in the case of a termination for cause, on the first anniversary of the date of termination of employment in the case of termination due to death or disability and 90 days after the termination of employment in all other cases.

Change of Control Provisions.  Under the plan, and unless the Committee provides otherwise in an individual’s award agreement, in the event of a change of control, the Company and the acquiror may agree that the surviving company will assume the existing award or substitute a new award for the existing award that preserves the economic value of the existing award, in each case without the consent of the participant. If the existing award is to be assumed or substituted and if the award holder is terminated without cause within one year of a change of control, that participant’s award will fully vest as of the date of such termination.

If the existing award is not to be assumed or substituted, then at least 15 days prior to the date of the change of control the award will become immediately and fully exercisable until the date of the change of control, at which point the award will be terminated. If no notice is given 15 days prior to the date of the change of control, then the award shall become immediately and fully vested on the date of the change of control and the award shall be

75

terminated as of such date in exchange for a cash payment by the Company in an amount equal to the value of the award that has not been exercised.

Employment Agreements

The Company is a party to employment agreements with each of Mr. James G. Petcoff, Mr. B. Matthew Petcoff, and Brian J. Roney.

If the employment of either Mr. Petcoff is terminated upon his death or disability, the terminated executive will be entitled to (i) a monthly sum equal to the highest monthly rate of base salary paid to the executive during the last full calendar year prior to the termination, less any disability payments from insurance for which the Company has paid the premiums, for a period equal to the sooner to occur of (A) the end of the full employment term or (B) the executive’s having reached 70 years of age, plus (ii) a one-time payment equal to three times his cash bonus(es) for the last full calendar year prior to the termination.

If the executive is terminated by the Company without cause, the executive will be entitled to the greater of (i) his base salary for the period until the end of the full employment term or (ii) a termination payment equal to three times the sum of (A) the executive’s annual base salary in effect on the date of the termination plus (B) one-half of the cash bonus paid or due to the executive for the last fiscal year prior to the date of the termination.

Change of Control Provisions.  Messrs Petcoff’s employments agreement provide generally that the executive’s terms and conditions of employment, including position, location, compensation and benefits, will not be adversely changed during the 24-month period after a change of control.

Upon any adverse employment change within such 24-month period, the executive will generally be entitled to receive a lump sum payment equal to the greater of:

•  his base salary for the period until the end of the full employment term; or

•  three times the sum of (i) the executives annual base salary in effect on the date of termination, plus (ii) one-half of the cash bonus paid or due to the executive for the last fiscal year prior to the date of termination.

The above termination payments will be adjusted so that no payment is considered an “excess parachute payment”, as such term is defined in Section 280G of the Code, by ensuring that the present value of the termination payments shall not exceed an amount equal to one dollar less than the maximum amount which the executive may receive without becoming subject to the tax imposed by Section 4999 of the Code or which the Company may pay without loss of deduction under Section 280G (a) of the Code.

If the proposed merger of the Company and a subsidiary of QBE Holdings, Inc. (“Buyer”) is approved and the transaction closes, Mr. James G. Petcoff’s employment agreement described above will be terminated and replaced by a separation and consulting agreement by and among the Company, Buyer, and Mr. James G. Petcoff dated as of January 3, 2008. Pursuant to the separation and consulting agreement, Mr. James G. Petcoff has agreed that, if the transaction closes, he will resign his employment and all positions he holds with the Company and waive all rights to his previous employment agreement described above, including but not limited to, the termination and change of control payments to which he would otherwise be entitled. Post-closing, Mr. James G. Petcoff will be engaged as a consultant to the surviving corporation for a term of six months, renewable under certain circumstances for a total term of two years. During the term of the consulting agreement, Mr. James G. Petcoff is entitled to receive payments of $50,000 per month for his consulting services. The consulting agreement also contains non-compete and non-solicitation clauses, under which Mr. James G. Petcoff is prohibited from competing with the surviving corporation for a period of two years after expiration of the two-year consulting term. In consideration for these restrictions, Mr. James G. Petcoff is entitled to receive monthly payments of $10,000 for the duration of the non-compete and non-solicitation period.

Mr. Roney’s employment agreement provides post-termination salary in the event his employment is terminated for any reason within 120 days of a change of control. Mr. Roney would be entitled to two times his base salary if he is terminated within 120 days of a change of control.

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Change of Control/Severance Payment Table

The following table estimates the potential payments and benefits to the named executive officers upon termination of employment or a change of control, assuming such event occurred on December 31, 2007. These estimates do not reflect the actual amounts that would be paid to such persons, which would only be known at the time that they become eligible for payment and would only be payable if the specified event occurs.

Named Executive Officers

								Life		Annual
				Miscellaneous		Share-Based		Insurance		Disability
	Cash Severance			Benefits		Awards		Proceeds		Benefits
James G. Petcoff(1)
Death	$	3,212,346			—	$	3,081	$	100,000		—
Disability		3,116,346			—		3,081		—	$	96,000
Termination without cause		2,486,250			—		3,081		—		—
Change of control		2,486,250	(2)		—		3,081		—		—
Brian J. Roney(1)
Death		—			—		4,970		100,000		—
Disability		—			—		4,970		—		96,000
Change of control		440,000			—		4,970		—		—
B. Matthew Petcoff(1)
Death		1,589,158			—		5,741		100,000		—
Disability		1,493,158			—		5,741		—		96,000
Termination without cause		1,362,600			—		5,741		—		—
Change of control		1,362,600			—		5,741		—		—
Bradford T. Lyons(1)
Death		—			—		700		200,000		—
Disability		—			—		700		—		96,000
Change of control		—			—		700		—		—
L. Matthew MacLean(1)
Death		—			—		21,800		100,000		—
Disability		—			—		21,800		—		96,000
Change of control		—			—		21,800		—		—

(1)	Except as noted in the table above, such person does not receive any additional payments if (i) he voluntarily terminates his employment, (ii) retires or (iii) his employment is terminated by the Company with or without cause.
(2)	In connection with the proposed merger of the Company with a subsidiary of QBE Holdings, Inc., Mr. James Petcoff was waived the payment of this amount. See the discussion under “Employment Agreements,” above.

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Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information regarding the Company’s equity compensation plans as of December 31, 2007:

					Number of
					Securities
					Remaining
					Available for
	Number of		Weighted-		Future Issuances
	Securities to be		Average		Under Equity
	Issued Upon		Exercise		Compensation
	Exercise of		Price of		Plans (Excluding
	Outstanding		Outstanding		Securities
	Options, Warrants,		Options, Warrants,		Reflected in
	and Rights		and Rights		Column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders:
Equity Incentive Plan		712,500	$	11.38		179,433
Equity compensation plan not approved by security holders:
None		—
		712,500	$	11.38		179,433

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information concerning beneficial ownership of our common stock as of March 24, 2008 for: (a) each director; (b) the chief executive officer, the chief financial officer and the three most highly compensated other executive officers; (c) the directors and executive officers as a group; and (d) each Shareholder known by the Company to be the beneficial owner of more than 5% of our voting securities.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In the table below, options that are exercisable or will become exercisable into shares of our common stock within 60 days of March 24, 2008 if any, are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. To our knowledge, except as indicated in the footnotes to this table and subject to applicable community property laws, where applicable, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Unless otherwise stated, the business address for each person below is c/o North Pointe Holdings Corporation, 28819 Franklin Road, Southfield, MI 48034.

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	Number of		Percent
Directors, Executive Officers and 5% Shareholders(1)	Shares(1)		%(1)
James G. Petcoff		2,896,640		32.0
B. Matthew Petcoff		446,500		4.9
John H. Berry(2)		31,225		*
Bradford T. Lyons		36,625		*
Brian J. Roney		180,800		2.0
L. Matthew MacLean(3)		15,700		*
Richard J. Lindberg		3,000		*
Joon S. Moon		426,500		4.7
Jorge J. Morales		3,000		*
R. Jamison Williams, Jr.(4)		133,350		1.5
Julius A. Otten		5,000		*
Joseph D. Sarafa		42,200		*
Paul B. Deemer		2,000		*
Becker Capital Management, Inc.		457,253		5.1
Hovde Financial, Inc.		553,581		6.1
Security Equity Fund		525,000		5.8
Security Global Investors, LLC		797,8000		8.8
Wellington Management Company, LLP		765,382		8.5
Wells Fargo & Company		1,069,859		11.8
All directors, director nominees and executive officers as a group (13 persons)		4,222,540		46.6

*	Represents less than 1%
(1)	The Company has relied upon information supplied by certain beneficial owners and upon information contained in filings with the SEC. Each share of Common Stock is entitled to one vote.
(2)	Mr. Berry holds his shares through the John H. Berry and Christine M. Berry Living Trust dated June 1, 2004, for which Mr. Berry serves as the trustee.
(3)	Mr. MacLean holds 2,500 shares indirectly through the Lawrence Matthew MacLean Living Trust dated March 20, 2000, for which Mr. MacLean serves as trustee.
(4)	Mr. R. Jamison Williams holds 132,350 shares indirectly through the Richard Jamison Williams, Jr. Revocable Trust dated December 7, 2001, for which Mr. R. Jamison Williams serves as trustee.

CHANGES IN CONTROL

On January 3, 2008, North Pointe Holdings Corporation, a Michigan corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), with QBE Holdings, Inc., a Delaware corporation (“Parent”) and Noble Acquisition Corporation, a Michigan corporation and a wholly owned direct subsidiary of Parent (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, and as a result the Company will continue as the surviving corporation and a wholly owned subsidiary of Parent. If the Merger is consummated, there will be a change of control of the Company.

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

RELATED PARTY TRANSACTIONS

An independent claims adjusting company, wholly-owned by a director of North Pointe Insurance and North Pointe Financial, who is also the father of the Vice President of Claims, provides claims services to the Company. Total fees for these services, which are included in the loss adjustment expenses, were $120,000 in 2007.

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In September 2004, the Company sold the renewal rights of approximately 100 liquor liability policies to an insurance company for which the Company has a management services agreement providing all of the accounting, premium collections and claims adjusting and processing. The Company recorded revenues from management services provided to that insurance company of $65,000 in 2007. The Chief Executive Officer and Chief Operating Officer of the Company hold minority ownership interests in that insurance company. The sales price for the renewal rights was $285,000, which the Company recorded as a gain on sale of business in 2004. The Company and the buyer also entered into a mutual non-compete agreement.

A director of the Company’s board and minority shareholder of the Company was paid $10,000 in 2007 for consulting services relating to a one-time project involving the evaluation of a potential investment by the Company. In 2006 and 2005, this individual was paid $5,000 per month for monitoring and evaluating the investments of and investment advisory services to the Company. This agreement was terminated in February 2005 and a new consulting agreement was entered in September 2005. This individual was paid $5,000 per month, beginning in October 2005, to assist the Company’s management in reviewing, evaluating and structuring possible future acquisitions. This agreement was terminated in December 2006.

The son of a director of North Pointe Insurance and North Pointe Financial, who is also the brother of the Vice President of Claims, provides consulting services on a project basis, including the management of the internal controls process, complex high value claims work and other projects as they arise. The consulting services agreement provides for a monthly retainer of $20,000. The Company incurred consulting expenses of $240,000 in 2007 for such services.

DIRECTOR INDEPENDENCE

The Company’s Board has determined, after considering all of the relevant facts and circumstances, that Messrs. Lindberg, Morales, Otten, Sarafa and Williams are “independent” from management in accordance with the Nasdaq listing standards and the Company’s Corporate Governance Policies. To be considered independent, the Board must determine that a director does not have any direct or indirect material relationships with the Company and must meet the categorical and other criteria for independence set forth in the Company’s Corporate Governance Policies. In addition, after considering all of the relevant facts and circumstances, the Board has determined that each member of the Audit Committee of the Board qualifies under the Audit Committee independence standards established by the SEC. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee are composed entirely of independent directors.

Item 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES.

AUDIT FEES.  The Company was billed $885,000 for Audit Services provided by Deloitte in 2007. The Company was billed $242,500 for Audit Services provided by Deloitte in 2006. “Audit Services” consist of professional services rendered by the Company’s principal accountant for the audits of the Company’s annual financial statements and management’s assessment of the Company’s internal control over financial reporting, review of the financial statements included in the Company’s quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with these filings.

The Company was billed $80,000 in 2007 and $25,000 in 2006 by Deloitte for certain actuarial services rendered by Deloitte, which were pre-approved by our Audit Committee.

TAX FEES.  The Company was billed $91,300 in 2007 for tax related services provided by Deloitte. The Company was billed $53,035 in 2006 for tax related services provided by Deloitte and billed $12,470 in 2006 for tax related services provided by PWC.

ALL OTHER FEES.  The Company was billed $5,300 in 2007 and $1,500 in 2006 for certain software utilized by the Company and provided by Deloitte.

The Audit Committee, based on its reviews and discussions with management and Deloitte noted above, determined that the provision of these services was compatible with maintaining Deloitte’s independence.

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PRE-APPROVAL POLICIES AND PROCEDURES FOR AUDIT AND NON-AUDIT SERVICES.  The Audit Committee has developed policies and procedures concerning its pre-approval of the performance of audit and non-audit services (including the fees and terms thereof) to be performed for the Company by the independent registered public accounting firm. If a product or service arises that was not already pre-approved, the Audit Committee has delegated to the Chairman of the Audit Committee the authority to consider and pre-approve such services between quarterly meetings of the Audit Committee. In pre-approving all audit services and permitted non-audit services, the Audit Committee or a delegated member must consider whether the provision of the permitted non-audit services is consistent with maintaining the independence of the Company’s independent registered public accounting firm. Any interim approvals granted by the Chairman of the Audit Committee are reported to the entire Audit Committee at its next regularly scheduled meeting.

PART IV

Item 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

15(a)(1)The following financial statements of North Pointe Holdings Corporation and the Reports of Independent Registered Public Accounting Firm thereon are filed with this report:

INDEX TO FINANCIAL STATEMENTS

	Page
North Pointe Holdings Corporation and Subsidiaries Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms		82
Consolidated Balance Sheets as of December 31, 2007 and 2006		84
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006, and 2005		85
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the Years Ended December 31, 2007, 2006, and 2005		86
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005		87
Notes to Consolidated Financial Statements		88
Financial Statement Schedules
Schedule I — Summary of Investments — Other than Investments in Related Parties		121
Schedule II — Condensed Financial Information of Registrant		122
Schedule III — Supplementary Insurance Information		127
Schedule IV — Reinsurance		130
Schedule VI — Supplemental Information Concerning Property — Casualty Insurance Operations		131

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

North Pointe Holdings Corporation

Southfield, Michigan

We have audited the accompanying consolidated balance sheets of North Pointe Holdings Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2007. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of North Pointe Holdings Corporation and subsidiaries at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/  Deloitte & Touche LLP

Detroit, Michigan

March 31, 2008

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of
North Pointe Holdings Corporation and Subsidiaries

In our opinion, the consolidated statements of income, of shareholders’ equity and comprehensive income and of cash flows for the year ended December 31, 2005 present fairly, in all material respects, the results of operations and cash flows of North Pointe Holdings Corporation and its Subsidiaries for the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules for the year ended December 31, 2005 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Detroit, Michigan
March 9, 2006, except for the effects of the
discontinued operations as disclosed in Note 3
to which the date is March 24, 2008

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North Pointe Holdings Corporation and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2007 and 2006

	2007		2006
	(Dollars in thousands, except share data)
ASSETS
Investments
Debt securities, available for sale, at fair value (amortized cost of $198,184 and $108,911 in 2007 and 2006, respectively)	$	200,681	$	107,334
Common stocks, at fair value (cost of $3,335 and $9,302 in 2007 and 2006, respectively)		3,054		11,376
Preferred stock (cost of $1,000 and $0 in 2007 and 2006, respectively)		1,037		—
Other investment		2,241		1,088
Total investments		207,013		119,798
Cash and cash equivalents		64,890		46,039
Accrued investment income		2,136		1,236
Premiums and agent balances receivable, net		31,346		18,088
Reinsurance recoverables on
Paid losses		5,337		4,168
Unpaid losses		51,141		33,321
Prepaid reinsurance premiums		7,770		11,881
Deferred policy acquisition costs		13,731		8,848
Deferred federal income taxes, net		9,375		5,061
Federal income tax recoverable		3,496		523
Fixed assets, net of accumulated depreciation		5,743		5,946
Prepaid expenses and other assets		3,263		2,668
Goodwill		11,550		—
Assets of discontinued operations		14,276		—
Total assets	$	431,067	$	257,577
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Liabilities
Unpaid losses and loss adjustment expenses	$	172,264	$	89,755
Unearned premiums		63,309		42,320
Debt		54,287		23,131
Amounts due to reinsurers		1,118		1,930
Accrued expenses and other liabilities		24,871		7,122
Premiums in advance		368		4,970
Amounts withheld for others		8,311		114
Liabilities of discontinued operations		8,285		—
Total liabilities		332,813		169,342
Commitments and contingent liabilities
Shareholders’ equity
Common stock, no par value; 50,000,000 shares authorized; 8,919,329 and 9,122,687
issued and outstanding in 2007 and 2006, respectively		49,041		50,578
Preferred stock, no par value; 5,000,000 shares authorized; and 0 shares issued
and outstanding in 2007 and 2006, respectively		—		—
Retained earnings		47,654		37,329
Accumulated other comprehensive income
Net unrealized gains on investments, net of deferred federal income
tax expense of $767 and $169, respectively		1,559		328
Total shareholders’ equity		98,254		88,235
Total liabilities and shareholders’ equity	$	431,067	$	257,577

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

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North Pointe Holdings Corporation and Subsidiaries

Consolidated Statements of Income

For the Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
	(Dollars in thousands, except share data)
Revenues
Direct premiums written	$	115,666		$	90,175		$	110,409
Assumed premiums written		3,658			10			613
Gross premiums written		119,324			90,185			111,022
Premiums ceded		(11,916	)		(29,058	)		(24,943	)
Net premiums written		107,408			61,127			86,079
(Increase)/decrease in unearned premiums		(13,229	)		5,524			(1,370	)
Net premiums earned		94,179			66,651			84,709
Investment income, net of investment expenses		8,676			5,731			3,865
Net realized capital gains (losses)		3,320			(214	)		(168	)
Fess and other income		6,649			1,369			1,901
Total revenues		112,824			73,537			90,307
Expenses
Losses and loss adjustment expenses, net		53,548			30,874			43,971
Policy acquisition costs		21,663			19,036			21,776
Other underwriting and operating expenses		27,981			21,781			17,812
Interest expense		3,261			1,711			959
Total expenses		106,453			73,402			84,518
Income before federal income tax expense and discontinued operations		6,371			135			5,789
Federal income tax expense		1,755			10			1,997
Income from continuing operations		4,616			125			3,792
Discontinued operations (Note 3)
Income from discontinued operations		8,632			6,891			88
Federal income tax expense		2,923			2,340			30
Income from discontinued operations		5,709			4,551			58
Net income	$	10,325		$	4,676		$	3,850
Earnings Per Share
Basic
Continuing operations	$	0.51		$	0.01		$	0.63
Discontinued operations		0.63			0.50			0.01
Net income	$	1.14		$	0.51		$	0.64
Diluted
Continuing operations	$	0.51		$	0.01		$	0.63
Discontinued operations		0.63			0.50			0.01
Net income	$	1.14		$	0.51		$	0.64
Weighted average number of shares
Basic		9,009,578			9,114,452			6,014,050
Diluted		9,015,881			9,116,516			6,014,218

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

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North Pointe Holdings Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

Years Ended December 31, 2007, 2006 and 2005

						Accumulated
						Other
	Common			Retained		Comprehensive
	Stock			Earnings		Income (Loss)			Total
	(Dollars in thousands)
Balances, January 1, 2005	$	5,880		$	28,803	$	9		$	34,692
Issuance of stock		44,270			—		—			44,270
Stock-based employee compensation		83			—		—			83
Comprehensive income
Net income		—			3,850		—			3,850
Unrealized losses on investments, net of
deferred federal income tax benefit of $343		—			—		(668	)		(668	)
Total comprehensive income		—			—		—			3,182
Balances, December 31, 2005	$	50,233		$	32,653	$	(659	)	$	82,227
Issuance of stock		48			—		—			48
Stock-based employee compensation		297			—		—			297
Comprehensive income
Net income		—			4,676		—			4,676
Unrealized gains on investments, net of
deferred federal income tax expense of $509		—			—		987			987
Total comprehensive income		—			—		—			5,663
Balances, December 31, 2006	$	50,578		$	37,329	$	328		$	88,235
Retirement of common stock	$	(2,135	)							(2,135	)
Issuance of stock		67			—		—			67
Stock-based employee compensation		531			—		—			531
Comprehensive income
Net income		—			10,325		—			10,325
Unrealized gains on investments, net of
deferred federal income tax expense of $598		—			—		1,231			1,231
Total comprehensive income		—			—		—			11,556
Balances, December 31, 2007	$	49,041		$	47,654	$	1,559		$	98,254

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

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Consolidated Statements of Cash Flows

Years Ended December 31, 2007, 2006 and 2005

	2007			2006			2005
	(Dollars in thousands)
Cash flows from operating activities
Net income	$	10,325		$	4,676		$	3,850
Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization		923			923			642
Bad debt expense		(2,275	)		700			(71	)
Net (gain) loss on sales and other dispositions of investments		(3,350	)		231			168
Stock compensation expense		598			345			82
Deferred federal income tax expense		2,336			273			365
Change in assets and liabilities
Premiums and agents balances receivable, net		(1,792	)		2,536			(3,834	)
Accrued investment income		2			(396	)		(265	)
Reinsurance recoverable, net		12,361			38,852			(30,874	)
Prepaid reinsurance premiums		1,218			(4,457	)		(1,873	)
Deferred policy acquisition costs		(5,357	)		730			215
Prepaid expenses and other assets		391			1,312			1,451
Losses and loss adjustment expenses		(10,325	)		(28,023	)		21,217
Unearned premiums		12,966			(2,381	)		2,450
Accrued expenses and other liabilities		(2,506	)		(7,790	)		8,664
Premiums in advance		(1,697	)		(2,125	)		6,168
Federal income tax payable (recoverable)		(1,590	)		1,675			(3,531	)
Net cash provided by operating activities		12,228			7,081			4,824
Cash flows from investing activities
Proceeds from maturities of debt securities		20,316			9,621			6,723
Proceeds from sales of debt securities		34,855			29,313			35,334
Proceeds from sales of equity securities		19,799			4,582			4,203
Purchases of debt securities		(46,443	)		(48,527	)		(66,368	)
Purchases of equity securities		(11,575	)		(4,743	)		(4,164	)
Purchases of other investments		(1,147	)		(535	)		(553	)
Purchases of subsidiaries, net of cash acquired of $13,356 and $168 in 2007 and 2005, respectively		(27,736	)		—			(1,386	)
Purchases of fixed assets		(467	)		(1,666	)		(742	)
Capital Contribution to NP Capital Trust I		—			(620	)		—
Net cash used in investing activities		(12,398	)		(12,575	)		(26,953	)
Cash flows from financing activities
Proceeds from issuance of common stock, net		—			—			44,270
Repurchases of common stock		(2,135	)		—			—
Proceeds from issuance of debt (net of $690 of issuance costs paid in 2006)		—			21,874			38,014
Proceeds from borrowings		25,298			—			—
Repayments of bank debt		(4,142	)		(4,460	)		(55,714	)
Net cash provided by financing activities		19,021			17,414			26,570
Increase in cash and cash equivalents		18,851			11,920			4,441
Cash and cash equivalents
Beginning of year		46,039			34,119			29,678
End of year	$	64,890		$	46,039		$	34,119
Supplemental cash flow information — cash paid during the year for
Interest	$	3,182		$	1,674		$	1,074
Federal income taxes		2,452			402			5,194
Supplemental disclosure of noncash investing activities
Liabilities assumed in purchase of subsidiaries		141,727			—			2,663

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

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North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements

1.   Description of Business

North Pointe Holdings Corporation (“North Pointe Holdings”) is an insurance holding company which wholly-owns North Pointe Financial Services, Inc. and subsidiaries (“North Pointe Financial”) and Midfield Insurance Company (“Midfield”) as of December 31, 2007; hereinafter collectively referred to as the “Company.” In addition, the consolidated financial statements include the equity ownership and earnings of NP Capital Trust I (“NP Trust”), a Delaware trust, the common interests in which are 100% owned by North Pointe Holdings.

North Pointe Holdings was incorporated in July 2001 to facilitate the acquisition of North Pointe Financial, Universal Fire & Casualty Insurance Company (“Universal Fire & Casualty”) and Alliance Surety Holdings, Inc. The acquisition, as well as the issuance of equity securities and a senior debt facility necessary for the acquisition, were effective June 26, 2002.

Alliance Surety Holdings, Inc. is a holding company with no operations. As of September 2006, Alliance Surety Holdings, Inc. was merged with North Pointe Holdings. Universal Fire & Casualty was sold as an insurance company shell in July 2003.

North Pointe Financial is the sole shareholder of North Pointe Insurance Company (“North Pointe Insurance”), North Pointe Casualty Insurance Company (“North Pointe Casualty”), Home Pointe Insurance Company (“Home Pointe”), Capital City Holding Company, Inc. and subsidiaries (“Capital City”), Home Pointe Managing General Agency, Inc. (Home Pointe MGA”), N.P. Premium Finance Company (“NP Premium”) and South Pointe Financial Services, Inc. (“South Pointe”). North Pointe Casualty was acquired in 2004. Home Pointe Insurance and Home Pointe MGA were created in 2005 specifically to write and service Florida homeowners insurance business. Capital City is the sole shareholder of Davis-Garvin Agency, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Charter Premium Audits, Inc., and Capital City Insurance Company, Inc. (“Capital City Insurance”).

On July 2, 2007, North Pointe Financial completed the purchase of all the outstanding shares of capital stock of Capital City Holding Company, Inc., as a result Capital City became a wholly-owned subsidiary of North Pointe Financial. This transaction was accounted for by the purchase method of accounting using Capital City’s historical financial information and applying fair value estimates to the acquired assets, liabilities assumed and commitments of Capital City as of July 2, 2007 (See Note 2). The operating results of Capital City have been included in the Company’s consolidated financial statements since their date of acquisition. The data herein for the prior year periods does not include Capital City.

During the fourth quarter of 2007, the Company committed to a plan to sell Home Pointe Insurance. In accordance with accounting standards, the financial results of Home Pointe are reported as discontinued operations in the Company’s consolidated balance sheet for the current year and as discontinued operations in the Company’s consolidated statement of income for all periods presented (See Note 3).

South Pointe and Home Pointe MGA are managing general agents writing business in Florida exclusively for the Company. As of September 2006, Home Pointe MGA was merged with South Pointe.

North Pointe Insurance is a Michigan-domiciled property and casualty insurance company licensed by the State of Michigan Office of Financial and Insurance Services (“OFIS”). NP Premium is a Michigan-domiciled premium finance company, with customers located in several states within the Midwest, which finances premiums principally written by North Pointe Insurance.

North Pointe Insurance principally writes liquor liability, general liability, property, commercial multi-peril and commercial automobile insurance for businesses such as restaurants, taverns, small grocery and convenience stores, bowling centers, automobile repair facilities, artisan contractors and other commercial accounts. Additionally, North Pointe Insurance provides commercial automobile liability and physical damage insurance coverage in the states of Ohio and Florida.

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Notes to Consolidated Financial Statements — (Continued)

North Pointe Insurance provided personal automobile liability and physical damage insurance coverage in the state of Michigan prior to the sale of the renewal rights of its personal automobile insurance business in October 2004.

North Pointe Casualty and Home Pointe Insurance are Florida-domiciled property and casualty insurance companies, licensed by the Florida Department of Financial Services (“FLDFS”). North Pointe Casualty provides similar commercial insurance coverages as North Pointe Insurance primarily in Florida and other southeast states and wrote substantially all of the Company’s Florida homeowners insurance business in 2005. Home Pointe Insurance has the authority to write as an admitted carrier in Florida only. In 2006, Home Pointe Insurance wrote substantially all of the Company’s Florida homeowners insurance business.

Midfield Insurance Company was formed in 2005 to serve as a captive reinsurer for certain of the Company’s gross premiums written in its other insurance subsidiaries and is domiciled in the District of Columbia. Midfield is licensed by the District of Columbia Department of Insurance, Securities and Banking (“DCDOI”).

Capital City Holding Company, Inc. is an insurance holding company that provides collection services for Capital City Insurance and Davis-Garvin Agency, as well as loss prevention services to Capital City Insurance and non-affiliated insurers.

Capital City Insurance is a South Carolina domiciled property and casualty insurance company, licensed by the South Carolina Department of Insurance (“SCDOI”). Capital City Insurance specializes in writing workers’ compensation and other commercial casualty coverage for the logging industry in the Southeastern United States. This business is primarily produced through its affiliated Davis-Garvin Agency.

Davis-Garvin Agency is a provider of all the insurance requirements to the logging and timber industry in the Southeastern United States. Workers compensation, general liability and commercial auto are placed with Capital City Insurance; other lines of business are placed with non-affiliated insurers. In addition, Davis-Garvin Agency acts as an independent agent for non-affiliated insurers to provide commercial and personal lines insurance.

Capital Excess and Surplus Brokers, Inc. is a South Carolina domiciled excess and surplus lines broker. They provide an excess and surplus lines market for Davis-Garvin and Capital City Insurance independent agents as well as other independent agents. In addition, it is an appointed agent to produce business for insurance programs underwritten by non-affiliated insurers.

Charter Premium Audits, Inc. provides premium audit services to Capital City Insurance with respect to workers compensation and general liability insurance and non-affiliated insurers.

Southeastern Claims Services, Inc. provides claims adjusting services to Capital City Insurance and non-affiliated insurers.

The Company offered insurance products in 49 and 47 states in 2007 and 2006, respectively. Gross premiums written from continuing operations in Florida, Michigan, Georgia, and South Carolina represented 38.7%, 17.5%, 5.6% and 5.4%, respectively, of total gross premiums written from continuing operations in 2007 and 55.9%, 23.4%, 0.1% and 0.0%, respectively, in 2006.

The Company markets its insurance products through a network of approximately 1,930 independent agents. In 2007, the single largest agent wrote 4.4% of gross premiums written from continuing operations and the top five agents produced 15.8% of the gross premiums written from continuing operations. No other agent produced more than 2.0% of the gross premiums written from continuing operations in 2007.

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Notes to Consolidated Financial Statements — (Continued)

2.   Acquisition

Capital City Holding Company, Inc.

On July 2, 2007, North Pointe Holdings acquired Capital City Holding Company, Inc., a stock property and casualty insurance holding company and South Carolina corporation and its subsidiaries. The Capital City entities offer property and casualty insurance generally to individuals and small to medium sized businesses in the southeastern United States, and perform insurance agency and other ancillary services in connection with the insurance business. The primary reasons for the acquisition were, among other things: a) to gain a stronger presence in a new customer segment; b) to further expand in the Southeast region; and c) to strengthen the combined Company’s position as a leading provider of property and casualty insurance products. The purchase price for the Capital City entities was $41.0 million, subject to a $4.0 million holdback to cover certain reserve related indemnification claims.

The estimated fair value of identifiable assets acquired and liabilities assumed on July 2, 2007 were as follows:

Fair value of assets acquired	$	171,269
Fair value of liabilities assumed		141,727
Fair value of net assets acquired		29,542
Total purchase price, including expenses		41,092
Resulting goodwill	$	11,550

The company has not finalized its determination of the fair value of certain acquired assets and liabilities assumed, including the identification and allocation of fair value to any intangible assets, and will adjust goodwill upon completion of the valuation process. The Company has not yet determined the amount of goodwill expected to be deductible for tax purposes, if any. All of the goodwill has been allocated to the commercial lines segment pending final allocations.

Beginning July 2, 2007, the financial results of Capital City Holding Company, Inc. have been consolidated into the financial results of the Company. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company for the years ended December 31, 2007 and 2006, as if this acquisition occurred on January 1, of each year. This pro forma information is not necessarily indicative of what would have happened had the acquisition been made on the date indicated, or of future results of the Company.

	Twelve Months		Twelve Months
	Ended		Ended
	December 31,		December 31,
	2007		2006
	(In millions,		(In millions,
	except per share		except per share
	data)		data)
Revenues from continuing operations	$	143,560	$	150,966
Net income from continuing operations		4,060		8,511
Net Income from continuing operations per share — basic		0.46		0.93
Net Income from continuing operations per share — diluted		0.46		0.93

3.   Discontinued Operations

In the fourth quarter of 2007, the Company committed to a plan to sell one of its insurance company subsidiaries, Home Pointe Insurance. In accordance with SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets,” the financial results of this subsidiary were reported separately as discontinued operations in the Company’s consolidated statements of income for all periods presented. The Company will not have any continuing involvement in the operations of this company after its sale which occurred on January 23,

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2008. Pursuant to the sale agreement, the Company will retain and settle an insignificant amount of claims incurred prior to closing.

The following tables provide detail information regarding the Home Pointe Insurance amounts included in the financial statement lines identified as discontinued operations:

	2007		2006			2005
	(In thousands)
Operating results:
Net premiums earned	$	14,265	$	13,584		$	27
Investment income, net of investment expense		1,041		803			137
Net realized capital gains (losses)		30		(17	)		—
Other revenues		443		515			2
Total revenues		15,779		14,885			166
Loss and loss adjustment expenses, net		3,427		4,501			32
Policy acquisitions costs		2,998		2,974			3
Other underwriting and operating expenses		722		519			43
Total expenses		7,147		7,994			78
Income before income taxes		8,632		6,891			88
Federal income tax expense		2,923		2,340			30
Net income from discontinued operations	$	5,709	$	4,551		$	58

	2007
	(In thousands)
Assets of Discontinued Operations:
Debt securities available for sale, at fair value	$	13,011
Accrued investment income		117
Premiums and agents receivable, net		278
Reinsurance recoverables on
Paid losses		1
Unpaid losses		190
Other assets		679
Total assets	$	14,276
Liabilities of Discontinued Operations:
Unpaid losses and loss adjustment expenses	$	1,639
Unearned premiums		3,391
Amounts due to reinsurers		8
Accrued expenses and other liabilities		223
Premiums in advance		2,994
Amounts withheld for others		30
Total liabilities	$	8,285

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Notes to Consolidated Financial Statements — (Continued)

4.   Summary of Significant Accounting Policies

Basis of Financial Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances have been eliminated in consolidation. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). GAAP differs in certain respects from Statutory Accounting Principles (“SAP”) prescribed or permitted by insurance regulatory authorities.

Investments

All of the Company’s securities have been classified as available-for-sale at December 31, 2007 and 2006. Available-for-sale securities are those securities that would be available to be sold in the future in response to the Company’s liquidity needs, changes in market interest rates, and asset-liability management strategies, among others. Available-for-sale securities are reported at fair value, with unrealized gains and losses reported as a separate component of shareholders’ equity, net of deferred taxes. The mortgage-backed and asset-backed portfolio investment income is recorded considering expected cash flows adjusted for changes in assumptions utilizing the retrospective method; prepayment assumptions are based on market expectations. Other investments is an investment in a limited partnership which is accounted for under the cost method.

Realized gains and losses on sales of investments are determined on the basis of specific identification. Dividend and interest income are recognized when earned. Discounts or premiums on debt securities purchased at other than par value are amortized using the constant yield method.

The fair values of investments represent quoted market values from published market sources.

The Company evaluates all investments with market values below cost or amortized cost, as appropriate, at the balance sheet date to determine if the investments are other than temporarily impaired. The determination of other than temporary impairment is based on analyses including, but not limited to, the following factors: market value less than amortized cost for a twelve month period; rating downgrade or other credit event; past due interest or principal payments; financial condition and near-term prospects of the issuer; any specific events which may influence the operations of the issuer; prospects for the issuer’s industry segment; general market conditions and prevailing interest rate changes; and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for anticipated recovery in market value. The Company evaluates its investments in securities to determine other than temporary impairment in each reporting period. Investments which are deemed other than temporarily impaired are written down to their estimated fair value and the related losses are recognized as realized losses.

Cash and Cash Equivalents

Cash equivalents include overnight interest-bearing deposits and short-term investments, which have an original maturity of three months or less at the time of purchase.

Premiums and Agents Balances Receivable

The majority of the premiums written are collected prior to providing risk coverage, minimizing the Company’s exposure to credit risk. The Company establishes an allowance for doubtful accounts for its premiums and agents balances receivable based on specific credit exposures, prior experience and the days outstanding of the premiums and agents balances receivable. The premiums and agents balances receivable is net of an allowance of $952,000 and $900,000 as of December 31, 2007 and 2006, respectively.

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Deferred Policy Acquisition Costs

Commissions and other costs of acquiring insurance business that vary with and are primarily related to the production of new and renewal business are deferred and amortized over the terms of the policies or reinsurance treaties to which they relate. Deferred policy acquisition costs are limited to the amount recoverable from future earned premiums. Investment earnings are anticipated in determining the recoverability of such deferred amounts.

Property and Equipment

Property and equipment is stated at cost, net of accumulated depreciation and is composed of real estate (the Company’s head office), office improvements and equipment. Depreciation is computed using the straight-line method over 39 years for the real estate property and 15 years for office improvements and fixtures and using an accelerated method over 5 years for equipment. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts. Any resulting gain or loss is credited or charged to operations. The following table summarizes property and equipment as of December 31, 2007 and 2006:

	December 31,
	2007		2006
	(Dollars in thousands)
Land	$	630	$	630
Building		3,342		3,342
Computer equipment		3,495		1,491
Furniture and fixtures		894		469
Leasehold Improvements		1,199		834
Office equipment		982		415
Automobiles		164		164
		10,706		7,345
Accumulated depreciation and amortization		4,963		1,399
Property and equipment, net	$	5,743	$	5,946

Unpaid Losses and Loss Adjustment Expenses and Reinsurance Recoverables

Unpaid losses and loss adjustment expenses (“LAE”) include amounts for reported losses and losses incurred but not reported estimated at what they will ultimately be settled for (i.e. not discounted). Incurred but not reported losses are determined using past experience of unreported losses. Reinsurance recoverables represent amounts currently due from reinsurers on paid losses and LAE and amounts recoverable from reinsurers on unpaid losses and LAE.

Unpaid losses and LAE and related recoverables are necessarily based upon estimates, and while management believes that the amounts are adequate, the ultimate liability and recoverable may be more or less than the amounts provided. The methods for making such estimates and for establishing the resulting reserves and recoverables are continually reviewed and adjustments are reflected in current operations.

Reinsurance

Reinsurance premiums and losses related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract. The Company records all reinsurance recoverables and prepaid reinsurance premiums as assets. Ceded premiums are reported as a reduction of premium revenue. Reinsured losses are reported as a reduction of loss and loss adjustment expenses in

93

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Notes to Consolidated Financial Statements — (Continued)

the accompanying consolidated statements of income. In the event of nonperformance by reinsurers, the Company remains primarily liable to its policyholders.

Stock-Based Compensation

The Company uses the fair-value-based measurement method to account for all stock-based employee compensation plans in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). For stock options and restricted stock, the Company recognizes compensation expense equal to the fair value of the options or restricted stock on the grant date. The compensation expense, net of deferred taxes, is recognized on a straight-line basis over the vesting period, adjusted for an estimated forfeiture rate.

Revenue Recognition

Premiums, net of reinsurance, are earned and recognized as revenue ratably over the periods of the policies. Unearned premium reserves represent the portion of premiums written applicable to the unexpired terms of policies in-force, and are computed on the monthly pro rata basis.

Premium deficiency reserves are required for the amount of the anticipated losses, LAE, commissions and other acquisition costs and maintenance costs not previously expensed and in excess of the recorded unearned premiums and anticipated investment income. The Company recorded a premium deficiency reserve of $543,000, $0 and $0 for 2007, 2006 and 2005, respectively.

Commission revenue is recognized as income at the later of the invoice date or the policy effective date. Adjustments to commissions resulting from cancellation or modifications are recorded at the time of their occurrence. Deferred commission income relates to premiums that are invoiced for policies that were not effective at year end.

Policy fees, installment fees and other service fees are earned over the life of the related policies.

Premium finance interest and charges are recognized over the contract term under the interest method.

Segment Reporting

The Company manages its operations through four reportable segments: commercial insurance lines, personal insurance lines, administrative services and agency services. Segment operations are addressed in Note 21.

Federal Income Taxes

The Company files a consolidated federal income tax return with its subsidiaries. Subsidiaries, as they are acquired, are included in the Company’s consolidated federal income tax return beginning on the date of acquisition.

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases based on enacted laws and statutory tax rates.

Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during the year, while diluted earnings per share includes the weighted average number of common shares and potential dilution from shares issuable pursuant to stock compensation awards, redeemable convertible preferred stock provisions or outstanding warrants, as applicable.

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Notes to Consolidated Financial Statements — (Continued)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from these estimates.

Significant accounts which are dependent upon management’s estimates include losses and loss adjustment expense reserves, federal income tax expense, other-than-temporary impairment of investments, fair value of net assets acquired, and reinsurance recoverables.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which redefines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. SFAS No. 157 applies where other accounting pronouncements require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The effects of adoption will be determined by the types of instruments carried at fair value in the Company’s financial statements at the time of adoption as well as the method utilized to determine their fair values prior to the adoption. Based on our current use of fair value measurements, the adoption of SFAS No. 157 on January 1, 2008 did not have a material effect on the results of operations or financial position of the Company.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, to permit all entities to choose to elect, at specified election dates, to measure eligible financial instruments at fair value. An entity would report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred and not deferred. SFAS No. 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS No. 157. The Company did not elect to measure any new instruments at fair value under SFAS No. 159, therefore the results of operations or financial position were not impacted.

In July 2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No. 48 (“FIN No. 48”) which clarifies the uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of FIN 48 effective January 1, 2007.

5.   Goodwill

Goodwill by line of business at December 31, 2007 was as follows:

	Commercial		Personal		Agency		Administrative
	Lines		Lines		Services		Services
January 1, 2007		—		—		—		—
Capital City Acquisition		11,550		—		—		—
December 31, 2007	$	11,550	$	—	$	—	$	—

Goodwill at December 31, 2007 resulted from the acquisition of the Capital City entities. In accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill is not amortized, but is evaluated for impairment on an annual basis as of October 1st each year or whenever events or changes in circumstances indicate

95

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Notes to Consolidated Financial Statements — (Continued)

that the carrying value may not be recoverable. At December 31, 2007 all of the Capital City goodwill has been allocated to the commercial lines segment until finalization of the purchase price allocation, which is expected to occur in the first half of 2008.

6.   Investments

The cost or amortized cost, gross unrealized gains and losses and fair value of investments available for sale at December 31, 2007 and 2006, are as follows:

	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value
	(Dollars in thousands)
December 31, 2007
U.S. government and agency securities	$	14,454	$	623	$	—	$	15,077
Foreign government securities		304		3		—		307
Corporate bonds		38,659		319		462		38,516
Municipal securities		67,012		1,385		4		68,393
Mortgage-backed securities		65,526		990		331		66,185
Asset-backed securities		12,229		58		84		12,203
Total debt securities		198,184		3,378		881		200,681
Common stocks		3,335		20		301		3,054
Preferred stocks		1,000		37		—		1,037
Total	$	202,519	$	3,435	$	1,182	$	204,772
December 31, 2006
U.S. government and agency securities	$	30,684	$	142	$	300	$	30,526
Foreign government securities		308		—		8		300
Corporate bonds		30,087		35		701		29,421
Municipal securities		7,003		34		2		7,035
Mortgage-backed securities		33,058		112		810		32,360
Asset-backed securities		7,771		10		89		7,692
Total debt securities		108,911		333		1,910		107,334
Common stocks		9,302		2,123		49		11,376
Total	$	118,213	$	2,456	$	1,959	$	118,710

96

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Change in net unrealized gains (losses) on investments for the years ended December 31, 2007, 2006 and 2005 was as follows:

	2007			2006			2005
	(Dollars in thousands)
Net unrealized gains (losses) at beginning of year	$	328		$	(659	)	$	9
Increase in net unrealized gains (losses):
Debt securities		4,074			742			(1,422	)
Preferred stock		37			—			—
Common stock		(2,355	)		754			411
Net (increase) decrease in deferred federal income tax expense		(601	)		(509	)		343
Increase (decrease) in net unrealized gains, net of deferred taxes		1,155			987			(668	)
Net unrealized gains (losses) from continuing operations at end of year		1,483			328			(659	)
Unrealized gains from discontinued operations at end of year net of increase in deferred federal income taxes of ($32)		76			—			—
Total net unrealized gains (losses) at end of year	$	1,559		$	328		$	(659	)

The following table provides the fair value and gross unrealized losses of the Company’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2007 and 2006. In 2007, the Company wrote down one impaired investment for a loss of $11,000. No investments were impaired in 2006 or 2005.

	Less than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss		Value		Loss
	(Dollars in thousands)
December 31, 2007
U.S. government and agency securities	$	—	$	—	$	—	$	—	$	—	$	—
Foreign government securities		—		—		—		—		—		—
Corporate bonds		2,620		29		17,503		433		20,123		462
Municipal securities		3,002		4		—		—		3,002		4
Mortgage-backed securities		1,737		6		17,628		325		19,365		331
Asset-backed securities		974		61		2,256		23		3,230		84
Total debt securities	$	8,333	$	100	$	37,387	$	781	$	45,720	$	881
Equity securities	$	2,442	$	301	$	—	$	—	$	2,442	$	301
December 31, 2006
U.S. government and agency securities	$	2,062	$	6	$	16,670	$	294	$	18,732	$	300
Foreign government securities		—		—		299		9		299		9
Corporate bonds		3,416		25		22,272		675		25,688		700
Municipal securities		1,426		2		—		—		1,426		2
Mortgage-backed securities		1,164		5		26,248		805		27,412		810
Asset-backed securities		73		—		6,007		89		6,080		89
Total debt securities	$	8,141	$	38	$	71,496	$	1,872	$	79,637	$	1,910
Equity securities	$	761	$	44	$	40	$	5	$	801	$	49

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North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

At December 31, 2007, the Company had 296 debt securities and 66 equity securities that were in an unrealized loss position deemed to be temporarily impaired. The debt securities all had unrealized losses of less than 7% except for 16 securities with a combined fair value of approximately $1,625,000 and unrealized losses of $213,000. The equity securities all had unrealized losses of less than 15% except for 13 securities with a combined fair value of $612,000 and unrealized losses of $171,000. Two hundred forty-nine of the debt securities have had unrealized losses for longer than one year. None of the equity securities were in an unrealized loss position for greater than one year.

At December 31, 2006, the Company had 517 debt securities and 16 equity securities that were in an unrealized loss position deemed to be temporarily impaired. The debt securities all had unrealized losses of less than 6% except for 7 securities with a combined fair value of approximately $2,436,000, none of which had an unrealized loss greater than 9%. The equity securities all had unrealized losses of less than 10% except for 2 securities with a combined fair value of $43,000. Neither of these 2 equity securities had unrealized losses that exceeded 20%. Four hundred fifty-one of the debt securities and one of the equity securities have had unrealized losses for longer than one year.

Positive evidence considered in reaching the Company’s conclusion that the investments with unrealized loss positions are not other-than-temporarily impaired at December 31, 2007 and 2006 consisted of: 1) there were no specific events which caused concerns; 2) there were no past due interest payments; 3) the Company’s ability and intent to retain the investment for a sufficient amount of time to allow an anticipated recovery in value; and 4) the Company also determined that the changes in market value of the debt securities were considered normal in relation to overall fluctuations in interest rates.

Recently, the U.S. secondary mortgage market has experienced disruptions resulting from credit quality deterioration in a significant portion of loans originated, primarily to non-prime and sub-prime borrowers. Our investment portfolio includes investments in mortgage-backed and asset-backed securities. As of December 31, 2007, mortgage and asset-backed securities constituted approximately 28.8% of our fixed income portfolio. Only a small portion of these securities are secured by sub-prime mortgage collateral. These securities are adequately collateralized, AAA rated investment quality that we currently expect will continue to perform.

The amortized cost and estimated fair value of debt securities by contractual maturity at December 31, 2007 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
	Cost		Value
	(Dollars in thousands)
Due within one year	$	7,380	$	7,369
Due after one year through five years		51,640		52,496
Due after five years through ten years		51,021		51,936
Due after ten years		10,388		10,492
Mortgage-backed securities		65,526		66,185
Asset-backed securities		12,229		12,203
Total debt securities	$	198,184	$	200,681

98

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Notes to Consolidated Financial Statements — (Continued)

Net investment income for years ended December 31, 2007, 2006 and 2005 follow:

	2007		2006		2005
	(Dollars in thousands)
Interest income from
Debt securities	$	6,900	$	4,014	$	3,707
Cash and cash equivalents		2,274		2,014		556
Dividends from
Common stocks		206		177		152
Total investment income		9,380		6,205		4,415
Less investment expenses		704		474		550
Net investment income	$	8,676	$	5,731	$	3,865

Gross proceeds from securities sold at the discretion of the Company and the related gross gains or gross losses for the years ended December 31, 2007, 2006 and 2005 are presented in the following table.

	2007		2006		2005
	(Dollars in thousands)
Proceeds from discretionary sales of debt securities	$	34,855	$	29,313	$	35,334
Related realized gains		223		88		115
Related realized losses		158		565		619
Proceeds from discretionary sales of equity securities		19,799		4,582		4,203
Related realized gains		3,838		704		571
Related realized losses		583		244		223

At December 31, 2007 and 2006, a combination of cash and securities with carrying values of $14,726,000 and $11,316,000, respectively, were on deposit with banks as security for reinsurance arrangements and for regulatory compliance, including $200,000 of restricted cash in 2007 and 2006.

7.   Fair Value of Financial Instruments

Statement of Financial Accounting Standards (“SFAS”) No. 107, Disclosures about Fair Value of Financial Instruments, requires companies to disclose the fair value information about their financial instruments. This standard excludes certain insurance related financial assets and liabilities and all non-financial instruments from its disclosure requirements.

Due to the short-term nature of cash and cash equivalents, premiums and agent balances receivable and accrued interest, their carrying value approximates their estimated fair value. Because debt and equity securities are recorded in the financial statements at their estimated fair values as securities available-for-sale under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, their carrying value is their estimated fair value. In addition, senior debt and lines of credit bear variable interest rates, so their carrying value approximates their fair value and the mortgage obligation carrying value approximates fair value based on the present value of future cash flows.

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Notes to Consolidated Financial Statements — (Continued)

8.   Deferred Policy Acquisition Costs

Changes in deferred policy acquisition costs for the years ended December 31, 2007, 2006 and 2005 are as follows:

	2007(1)			2006			2005
	(Dollars in thousands)
Balance from continuing operations, beginning of period	$	8,295		$	9,578		$	9,793
Additions from continuing operations		27,145			17,365			21,149
Additions from discontinued operations		—			3,527			133
Amortization from continuing operations		(21,709	)		(18,648	)		(21,494	)
Amortization from discontinued operations		—			(2,974	)		(3	)
Balance, end of period	$	13,731		$	8,848		$	9,578

(1) Discontinued operations are excluded from the 2007 column, because the effects of discontinued operations are excluded from year end 2007 deferred acquisition cost balance. As a result, the beginning of the period balance for 2007 was also reduced by $553,000.

9.   Liability for Unpaid Losses and LAE

The Company regularly updates its reserve estimates as new information becomes available and events occur that may impact the resolution of unsettled claims. Changes in prior reserve estimates are reflected in the results of operations in the year such changes are determined to be needed and recorded. Activity in the reserves for losses and loss adjustment expenses for the years ended December 31, 2007, 2006 and 2005 is summarized as follows:

	2007			2006			2005
Balance, beginning of period from continued operations	$	89,755		$	117,758		$	96,561
Balance, beginning of a period from discontinued operations					20
Liability for losses and LAE assumed		94,474			—			—
Less reinsurance recoverables		33,321			60,022			36,544
Less reinsurance recoverables acquired		29,816			—			—
Less net loss and LAE of discontinued operations		1,592			12			—
Net balance		119,500			57,744			60,017
Incurred related to
Current year from continued operations		50,238			33,367			49,406
Current year from discontinued operations		—			4,502			32
Prior years from continued operations-North Pointe(1)		3,449			(2,492	)		(5,435	)
Prior years from continued operations-Capital City(1)(3)		(139	)		—			—
Prior years from discontinued operations		—			(2	)
Total incurred		53,548			35,375			44,003
Paid related to
Current year from continued operations		19,766			11,994			23,923
Current year from discontinued operations		—			2,911			24
Prior years from continued operations		32,159			21,775			22,329
Prior years from discontinued operations		—			5
Total paid		51,925			36,685			46,276
Net balance, end of period		121,123			56,434			57,744
Plus reinsurance recoverables, excluding Citizens assessment(2)		51,141			33,321			60,034
Balance, end of period	$	172,264		$	89,755		$	117,778

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Notes to Consolidated Financial Statements — (Continued)

(1)	Incurred related to prior years includes $372,000 favorable development related to discontinued operations and $3,682,000 unfavorable development from continuing operations for 2007. Discontinued operations are excluded from the 2007 column.
(2)	For the purpose of comparability, at December 31, 2005 the Citizens assessment of $5,955,000 is excluded from the reinsurance recoverable amounts in the above summary (See Note 16).
(3)	Incurred for prior years includes is based on six months of development for reserves assumed in purchase.

Management believes the estimate of the ultimate liability for losses and LAE at December 31, 2007 is reasonable and reflective of anticipated ultimate experience. However, due to the uncertainty inherent in estimating such liabilities, it is reasonably possible that the ultimate settlement of the losses and the related loss adjustment expenses may vary significantly from the estimated amounts included in the accompanying financial statements.

The $3,310,000 adverse development in 2007 was primarily attributable to $1,562,000 deficiencies from the Florida small business lines of business, $1,143,000 deficiencies from restaurant, bar and tavern (“RBT”) and bowling center lines of business, and $958,000 deficiencies from the commercial automobile lines of business. The deficiencies in the Florida small business lines and commercial automobile lines of business were primarily attributable to the 2004 to 2006 accident years. The deficiencies in the RBT and bowling lines of business were primarily attributable to the 2005 and 2006 accident years.

The $2,494,000 favorable development in 2006 was primarily attributable to $6,560,000 of redundancies from the RBT and bowling center lines of business primarily attributable to the 2002 to 2005 accident years. The redundancies in RBT and bowling lines was offset by $1,779,000 and $3,004,000 of deficiencies in personal automobile and commercial multi-peril coverages in the Florida small business lines of business, respectively. The deficiencies in the personal auto and the Florida small business lines were primarily attributable to the 2001 to 2005 accident years.

The $5,435,000 favorable development in 2005 was primarily attributable to $2,080,000 of redundancies from the RBT and bowling center lines of business primarily attributable to the 2002, 2003 and 2004 accident years, $848,000 from the commercial multi-peril coverages in the Florida small business line, primarily attributable to the 2001, 2003 and 2004 accident years, $1,290,000 from the personal automobile line, primarily attributable to the 2001, 2002 and 2003 accident years and $682,000 from the Midwest homeowners line, primarily attributable to the 2003 and 2004 accident years.

The Company establishes reserves based on actuarial methodologies which utilize a combination of the Company historical loss data and industry loss data. The weighting of the data utilized depends on the volume and amount of historical data the Company has available for each particular line of business. The redundancies that have arisen are generally attributable to the utilization of industry data with reported loss experience that was higher than the Company’s ultimate loss development. The more significant redundancies are primarily attributable to the liability coverages and require two to four years to develop sufficiently before actuarially sound methodologies will permit the Company to apply substantially its own loss experience to the reserve calculation.

10.   Reinsurance

Substantially all of the Company’s reinsurance agreements are excess of loss programs. For the year ended December 31, 2007, the Company’s retention was $500,000 in the commercial and Midwest homeowners lines of business, $500,000 in the Florida homeowners lines of business, and $600,000 in the commercial casualty lines of business. In 2006 and 2005, the Company’s retention was $250,000 in the commercial and Midwest homeowners lines of business and $500,000 in the Florida homeowners line of business. In general, the limits on the primary reinsurance agreements coincide with limits offered under the Company’s insurance programs which did not exceed $5,000,000 for commercial and Midwest homeowners, $2,000,000 in Florida homeowners, and $1,000,000 in commercial casualty in 2007. The limits on the primary multi-line reinsurance agreement for 2006 and 2005

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Notes to Consolidated Financial Statements — (Continued)

coincide with the limits offered under the Company’s insurance programs which did not exceed $1,000,000. The Company obtains additional reinsurance on a policy-by-policy basis for coverage limits that exceed the primary reinsurance treaty’s limits. The Company carried no reinsurance on its commercial and personal automobile physical damage coverages.

For the year ended December 31, 2007, the Company’s commercial and Midwest homeowners catastrophe reinsurance agreements provide 100% coverage for up to $20,000,000 in losses in excess of $5,000,000 retention. For the year ended December 31, 2006, the Company’s commercial and Midwest homeowners catastrophe reinsurance agreements provide 100% coverage for up to $22,000,000 in losses in excess of $8,000,000 retention. For the years ended December 31, 2005, the Company carried catastrophe reinsurance coverage to cover losses up to $60,000,000 subject to retention of $3,000,000 for the commercial, Midwest homeowners and personal automobile lines of business. For the catastrophe reinsurance contracts that expired in 2005, the Company was subject to various participation percentages within certain layers of reinsurance.

For 2007, the Company’s catastrophe reinsurance coverage for the Florida homeowners program relied heavily on the Florida Hurricane Catastrophe fund, of FHCF, which is a state sponsored reinsurance program. The FHCF provides 90% coverage for up to approximately $83,000 of losses in excess of an approximate $29,000 retention in the “FHCF Main Layer,” and 90% coverage for approximately $64,000 in losses in excess of an approximate $112,000 in the “FHCF TICL Layer.”

For 2006, the Company’s catastrophe reinsurance coverage for the Florida homeowners program relied heavily upon FHCF. In addition, the Company obtained private catastrophe reinsurance to provide additional coverage above the FHCF limit and to cover some of the retention inherent in the FHCF agreements. The FHCF provides North Pointe Casualty 90% coverage for up to approximately $10,700,000 of losses in excess of an approximate $3,400,000 retention. The private reinsurance provides 91.5% coverage for up to $4,000,000 in losses in excess of a $10,000,000 retention and provides 100% coverage for up to $13,000,000 in losses in excess of a $14,000,000 retention.

For 2005, the Company’s catastrophe reinsurance coverage for the Florida homeowners program had a limit of $139,000,000, subject to retention of $3,000,000 and a 1.25% participation in losses between $64,000,000 and $104,000,000, in 2005. These reinsurance arrangements help to reduce the Company’s losses arising from large risks or from hazards of an unusual nature.

For the years ended December 31, 2007 and 2006 the Company carried clash reinsurance coverage up to $6,000,000 in losses in excess of a $1,000,000. For the year ended December 31, 2005, the Company carried clash reinsurance coverage equal to $4,000,000 in losses in excess of a $1,000,000 retention.

The Company experienced no catastrophic events in 2007 or 2006. The Company experienced one event subject to the catastrophe reinsurance contracts from Hurricane Wilma that occurred in Florida in 2005.

For the year Ended December 31, 2007, the North Pointe Insurance workers compensation reinsurance agreement provided coverage for $15,000,000 with a $1,000,000 retention. The Capital City Insurance workers compensation reinsurance agreement provided coverage for $20,000,000 with a $2,000,000 retention.

On November 1, 2007, the Company purchased a lawyers professional liability excess of loss reinsurance treaty. The lawyers professional liability agreement provides coverage up to $4,000,000 excess of loss with a $500,000 retention.

There were no reinsurance coverage limits on the personal automobile personal injury protection coverage which was reinsured by the Michigan Catastrophic Claims Association (“MCCA”). This reinsurance indemnifies its members for personal injury protection losses exceeding specified limits. The MCCA must provide this reinsurance and North Pointe Insurance, like all insurance companies that write automobile insurance in Michigan, must accept and pay for this reinsurance.

102

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

Although the ceding of insurance does not discharge the original insurer from its primary liability to its policyholders, the insurance company that assumes the coverage, assumes the related liability.

Management believes that all amounts due from reinsurers as of December 31, 2007 and 2006 are recoverable. As of December 31, 2007, the Company had no significant disputes with its reinsurers.

The following table represents the effect of such reinsurance transactions on premiums and loss and LAE:

	Direct		Assumed			Ceded		Net
	(Dollars in thousands)
2007
Premiums written	$	115,666	$	3,658		$	11,916	$	107,408
Premiums earned		106,684		3,102			15,607		94,179
Losses and LAE incurred		67,002		3,304			16,758		53,548
Losses and LAE reserves		164,606		7,658			51,141		121,123
Unearned premium reserves		62,287		1,022			7,770		55,539
2006
Premiums written	$	90,175	$	10		$	29,058	$	61,127
Premiums earned		95,625		27			29,001		66,651
Losses and LAE incurred		47,193		(340	)		15,979		30,874
Losses and LAE reserves		88,030		1,725			33,321		56,434
Unearned premium reserves		42,315		5			11,881		30,439
2005
Premiums written	$	110,409	$	613		$	24,943	$	86,079
Premiums earned		108,363		1,288			24,942		84,709
Losses and LAE incurred		101,435		(735	)		56,729		43,971
Losses and LAE reserves		115,059		2,719			60,034		57,744
Unearned premium reserves		44,679		22			7,424		37,277

Amounts due from reinsurers, including those related to losses and LAE and prepaid reinsurance premiums, for which the Company is contingently liable, consist of the following as of December 31:

	2007		2006
	(Dollars in thousands)
Paid losses and LAE	$	5,337	$	4,168
Unpaid losses and LAE		51,141		33,321
Prepaid reinsurance premiums		7,770		11,881
Amounts due from reinsurers	$	64,248	$	49,370

103

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The Company had reinsurance recoverables from the following reinsurers as of December 31:

	2007		2006
	(Dollars in thousands)
General Reinsurance	$	16,864	$	3,123
National Workers Compensation Reinsurance Pool		14,591		—
Swiss Reinsurance American Corporation		8,583		17,119
MCCA		5,379		7,589
Platinum Reinsurance Company		4,779		4,702
TOA Reinsurance Company of America		4,682		1
National Flood Insurance Program		1,486		9
Folksamerica Reinsurance Company		1,480		3,494
Munich Reinsurance America, Inc.		1,220		45
Lloyd’s Syndicate Number 4472		1,043		—
All other		4,141		13,288
Total reinsurance recoverables	$	64,248	$	49,370

11.   Federal Income Taxes

The provisions for federal income taxes from continuing operations for the year ended December 31, 2007, 2006 and 2005 consist of the following:

	2007			2006			2005
	(Dollars in thousands)
Current tax (benefit) expense	$	(543	)	$	(365	)	$	1,601
Deferred tax expense (benefit) relating to
NOL carryforwards		326			358			401
Other deferred tax balances		1,972			17			(5	)
Total provision for income tax	$	1,755		$	10		$	1,997

The effective tax rate of 27.5%, 7.4% and 34.5% for the years ended December 31, 2007, 2006 and 2005, respectively, is different than the amount computed at the statutory federal rate of 34.0%. The reasons for such differences and the related tax effects are as follows:

	2007			2006			2005
	(Dollars in thousands)
Tax provision at statutory rate 34.0%	$	2,166		$	46		$	1,968
Tax effect of
Dividend received deduction		(42	)		(36	)		(30	)
Tax-exempt interest		(356	)		—			—
Other, net		(13	)		—			59
Total provision for income tax	$	1,755		$	10		$	1,997

104

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The components of deferred tax assets and liabilities as of December 31, 2007 and 2006 are as follows:

	2007		2006
	(Dollars in thousands)
Deferred federal income tax assets
Losses and loss adjustment expenses	$	5,239	$	2,214
Unearned premiums		3,898		2,483
Net operating loss carryforwards		1,945		2,271
Premiums receivable		251		323
Lease obligation		74		120
Intangible asset		272		306
Accrued assessments		1,772		—
Other		1,463		544
Total deferred tax assets		14,914		8,261
Deferred federal income tax liabilities
Deferred policy acquisition costs		4,668		3,008
Net unrealized gains on investments		767		169
Other		104		23
Total deferred tax liabilities		5,539		3,200
Net deferred federal income tax assets	$	9,375	$	5,061

At December 31, 2007, the Company had net operating loss (NOL) carryforwards of $5,721,000 available to offset future taxable income. These NOL carryforwards are limited by federal tax regulations to offset taxable income by $960,000 annually in years 2008 through 2010, $922,000 for the year 2011, $909,000 for the year 2012, $869,000 for the year 2013 and $20,000 in years 2014 through 2020.

The following table presents the origination and expiration year of the unrealized NOL carryforwards as of December 31, 2007:

NOL Carryforwards	Year Originated		Year of Expiration
	(Dollars in thousands)
$163		1997		2011
472		1999		2018
1,393		2000		2019
3,693		2001		2020
$5,721

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. There was no effect on the Company’s retained earnings as a result of adopting FIN 48.

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Notes to Consolidated Financial Statements — (Continued)

The Company reconciled the unrecognized tax benefit between January 1, 2007 and December 31, 2007, as follows:

Gross unrecognized tax benefit (“FIN 48 liability”) at January 1, 2007	$	163
Gross increase in unrecognized tax positions related to prior years	$	2,857
Gross decrease in unrecognized tax positions related to prior years	$	(38	)
Gross increase in unrecognized tax positions related to current year	$	—
Gross decrease in unrecognized tax positions related to current year	$	(1,122	)
Gross decrease in unrecognized tax positions for lapse of statute of limitations	$	(28	)
Gross decrease for settlements of tax positions	$	—
Gross unrecognized tax benefit at December 31, 2007	$	1,832

The FIN 48 liability is carried in accrued expenses and other liabilities in the consolidated balance sheet at December 31, 2007. As of January 1, 2007, the entire $163,000 balance would affect the effective tax rate, if recognized. As of December 31, 2007, $96,000 would affect the effective tax rate and $20,000 would affect goodwill, if recognized.

The $2,857,000 gross increase of unrecognized tax benefits related to prior years relates to the purchase of Capital City. Upon purchase, the Company assumed $2,857,000 of unrecognized tax benefits comprised predominately of items which are certain as to the deduction, but uncertain as to the timing.

Although no penalties are accrued, if incurred, they would be recognized as a component of other underwriting and operating expenses in the consolidated statements of income. Interest expense associated with unrecognized tax benefits is recorded as interest expense in the consolidated statements of income. For the current year, the Company accrued $50,000 of interest expense. The accrued interest payable was $50,000 at December 31, 2007.

The Company and its subsidiaries file a U.S. consolidated income tax return and file tax returns in various state jurisdictions. For U.S. federal tax purposes, years subsequent to 2003 are open and the Company can be audited. The Company is not currently under examination, nor is it aware of any pending examination. Capital City, which was acquired in 2007, is currently under federal audit for the 2002 through 2005 tax years. Capital City is currently appealing the findings of the examination team. The Company currently carries a net operating loss generated in years for which the statute has closed. However, it is possible the IRS could adjust this tax attribute in the years the losses were generated and in subsequent years. The Company’s material state tax jurisdictions include Florida, Michigan, and South Carolina for which the years subsequent to 2002 are open and can be audited by the state examining authorities. The Company is not under audit, nor is it aware of any pending examinations by any state jurisdictions.

At this time, the Company estimates that an immaterial amount of unrecognized tax benefits will reverse in the next twelve months for statute expiration. Furthermore, the Company estimates $1,735,000 of unrecognized tax benefits attributable to certain Capital City accrued expenses are expected to reverse due to settlement with the IRS.

12.   Shareholders’ Equity

Common Stock

In August 2006, the Company’s Board of Directors authorized the repurchase of up to $5,000,000 of the Company’s outstanding common stock. Under this program, repurchases may be made from time to time in the open market at prevailing market prices or through privately negotiated transactions in accordance with the Rule 10b5-1 under the Securities Exchange Act of 1934. The repurchase program has a twenty-four month time limit, and the timing and actual number of shares to be repurchased will depend on a variety of factors, including corporate and regulatory requirements, price, and other market conditions. During the year ended December 31,

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Notes to Consolidated Financial Statements — (Continued)

2007, the Company had repurchased 209,000 shares of common stock and approximately $2,875,000 of shares may yet be purchased under the program. Prior to 2007, no shares had been repurchased under this program.

On June 5, 2007, the Company granted a restricted stock award to non-employee directors amounting to 6,000 shares and having a fair value of $67,000.

On June 22, 2006, the Company granted a restricted stock award to non-employee directors amounting to 6,000 shares and having a fair value of $48,000.

On September 28, 2005, the Company completed an initial public offering of 4,000,000 shares of common stock at $12.00 per share. On November 15, 2005, the Company issued another 225,000 shares at $12.00 per share resulting from the underwriters exercising the over-allotment option granted in connection with the initial public offering. There were no selling shareholders. Total proceeds to the Company amounted to $44,270,000, net of the underwriting discount of $3,549,000 and $2,881,000 of expenses related to the offering.

An 8.49-for-one common stock split was completed prior to the initial public offering in 2005. All common share data disclosures reflect the stock split. Also in conjunction with the initial public offering, the Company filed amended and restated articles of incorporation which increased the authorized common shares from 10,000,000 to 50,000,000.

On September 28, 2005, the Company granted a restricted stock award to an executive amounting to 2,500 shares and having a fair value of $30,000.

Preferred Stock

On September 23, 2005, in conjunction with the initial public offering, the Company filed its second amended and restated articles of incorporation, which retired its authorized but unissued redeemable cumulative convertible preferred stock and authorized 5,000,000 of a new class of preferred stock with no par value. The newly authorized preferred stock currently does not have any defined preferences or rights. There were no preferred shares issued or outstanding at December 31, 2007 or 2006.

13.   Stock — Based Compensation

Stock Options

On June 5, 2007 and September 12, 2007, certain employees were granted options to purchase up to 25,000 and 245,000 shares, respectively, of the Company’s common stock for $11.11 and $10.86, respectively, subject to vesting as described below. The options become exercisable in equal 20% installments on each anniversary of the grant date, commencing with the first anniversary thereof. The options expire on the tenth anniversary of the grant date or 90 days following termination of employment, whichever occurs first.

On November 27, 2006, certain employees were granted options to purchase up to 95,000 shares of the Company’s common stock for $10.50, subject to vesting as described below. The options become exercisable in equal 20% installments on each anniversary of the grant date, commencing with the first anniversary thereof. The options expire on the tenth anniversary of the grant date or 90 days following termination of employment, whichever occurs first.

On September 28, 2005, certain employees were granted options to purchase up to 402,500 shares of the Company’s common stock for $12.00 per share, subject to vesting as described below. The options become exercisable in equal 20% installments on each anniversary of the grant date, commencing with the first anniversary thereof. The options expire on the tenth anniversary of the grant date or 90 days following termination of employment, whichever occurs first.

107

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Notes to Consolidated Financial Statements — (Continued)

The fair value of stock options was estimated at the date of grant using the Black-Scholes option pricing model and employing the following assumptions on options granted in 2007, 2006 and 2005:

	Stock Option Assumptions Granted on
	September 12,			June 5,			November 27,			September 28,
	2007			2007			2006			2005
Fair value of the underlying common stock	$	10.86/share		$	11.11/share		$	10.50/share		$	12.00/share
Weighted average life of options		6.5 years			6.5 years			6.5 years			6.5 years
Risk-free interest rate		4.11	%		4.95	%		4.46	%		4.13	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Weighted average volatility assumption		27.60	%		41.10	%		28.20	%		30.20	%
Weighted average grant date fair value of options granted	$	4.08		$	5.51		$	4.08		$	4.76

The following is a summary of the Company’s stock option activity for the years ended December 31:

					Weighted-
			Weighted-		Average
			Average		Remaining
	Options		Exercise Price		Contractual Term
2007
Outstanding — beginning of year		472,500	$	11.70
Granted		270,000	$	10.88
Forfeited		30,000	$	12.00
Outstanding — end of year		712,500	$	11.38		8.64
Exercisable at end of year		158,000	$	11.82		7.89
2006
Outstanding — beginning of year		402,500	$	12.00
Granted		95,000	$	10.50
Forfeited		25,000	$	12.00
Outstanding — end of year		472,500	$	11.70		8.98
Exercisable at end of year		75,500	$	12.00		8.74
2005
Outstanding — beginning of year		—	$	—
Granted		402,500	$	12.00
Forfeited		—	$	—
Outstanding — end of year		402,500	$	12.00		9.75
Exercisable at end of year		—	$	—		—

For the year ended December 31, 2007, 2006 and 2005, the Company recognized $548,000, $327,000 and $81,000, respectively, of compensation expense and $165,000, $111,000 and $28,000, respectively, of associated deferred tax benefit, related to the vesting of stock options. A total of $1,980,000 of compensation expense for unvested stock options will be recognized on a straight-line basis over the remainder of the five-year vesting period, which assumes an estimated annual forfeiture rate of 2.2%.

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Notes to Consolidated Financial Statements — (Continued)

No stock options were awarded prior to September 28, 2005 and no options had expired or been exercised as of December 31, 2006 or 2005. As of December 31, 2007, 55,000 stock options had been forfeited. Upon the exercise of an option award, the Company would expect to issue new shares to satisfy its obligation to deliver such shares.

Restricted Stock

On June 5, 2007, the Company granted 6,000 restricted shares of the Company’s common stock (1,000 shares to each of the six non-employee directors) having a market value of $11.11 per share. The restricted shares vest on the second anniversary of the grant date, provided the director is still serving as a director of the Company on such date. In 2007, the Company recognized $20,000 of compensation expense related to the restricted stock. A total of $47,000 of compensation expense for the unvested restricted stock will be recognized on a straight-line basis for the remainder of the two-year vesting period. Non-vested restricted shares are forfeited upon termination of the director’s position.

On June 22, 2006, the Company granted 6,000 restricted shares of the Company’s common stock (1,000 shares to each of the six non-employee directors) having a market value of $7.95 per share. The restricted shares vest on the second anniversary of the grant date, provided the director is still serving as a director of the Company on such date. In 2007 and 2006, the Company recognized $24,000 and $12,000, respectively, of compensation expense related to the restricted stock. A total of $12,000 of compensation expense for the unvested restricted stock will be recognized on a straight-line basis for the remainder of the two-year vesting period. Non-vested restricted shares are forfeited upon termination of the director’s position.

On September 28, 2005, the Company awarded one employee 2,500 shares of restricted stock, having a market value of $12.00 per share. The vesting requirements relating to this restricted stock grant are the same as those applicable to the stock options granted on the same date. In 2007, 2006 and 2005, the Company recognized $6,000, $6,000 and $2,000, respectively, of compensation expense related to the restricted stock. A total of $16,000 of compensation expense for unvested restricted stock will be recognized on a straight-line basis over the remainder of the five-year vesting period.

14.   Debt

Senior Credit Facility

On July 2, 2007, the Company entered into Amendment Number 2 to the Second Amended and Restated Credit Agreement (the “Credit Agreement”) with Comerica Bank (“Comerica”), as agent. This Credit Agreement expires July 1, 2010 and provides a revolving credit line of $35,000,000. At December 31, 2007, there was an outstanding balance of $21.3 million on the revolving credit line bearing interest of 6.41%.

Borrowings under the Credit Agreement bear interest at a floating rate equal to either (1) a Eurodollar rate equal to a stated margin of 1.25% plus the interest rate certain of Comerica’s lending offices offer on deposits to prime banks in the Eurodollar market or (2) a rate based upon Comerica’s prime rate of interest less 1.00%. Interest on Eurodollar-based rate advances is payable on the last day of the interest period applicable thereto. Interest on prime-based rate advances is payable quarterly in arrears.

The Credit Agreement provides that Comerica will issue, on behalf of the Company, letters of credit in amounts up to $5,000,000. The amount of any outstanding letters of credit by Comerica will reduce, dollar for dollar, the aggregate amount available under the revolving credit line.

The borrowings under the Credit Agreement may be used to finance certain permitted acquisitions and to fund working capital needs of the Company. The obligations under the Credit Agreement are unconditionally guaranteed by certain of the Company’s subsidiaries and are secured by (1) a pledge by the Company of 100% of the issued and outstanding stock of certain subsidiaries of the Company and (2) a security interest in substantially all of the tangible and intangible assets of certain subsidiaries of the Company.

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Notes to Consolidated Financial Statements — (Continued)

The Credit Agreement requires that the Company comply with various financial and other covenants, including requirements that it maintain an A.M Best rating of no less than “B+” for certain of its insurance company subsidiaries, and that the Company maintain the following financial ratios for each insurance company subsidiary including the Cap City acquired entities:

•  adjusted capital and surplus will be in excess of 275% of authorized control level risk-based capital as of each fiscal year end;

•  there shall be no more than four IRIS calculations that result in unusual values at each fiscal year end;

•  the ratio of net premiums written to statutory capital and surplus will not exceed more than 4.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 2.5 to 1.0 in the case of North Pointe Insurance Company, and 2.5 to 1.0 in the case of Capital City Insurance Company; and

•  the ratio of gross premiums written to statutory surplus will not exceed more than 10.0 to 1.0 in the case of North Pointe Casualty Insurance Company, 3.0 to 1.0 in the case of North Pointe Insurance Company and 3.0 to 1.0 in the case of Capital City Insurance Company.

The Credit Agreement contains negative covenants restricting the Company’s ability to, among other things, enter into a merger or consolidation, sell, lease or otherwise dispose of its assets, acquire the stock or assets of another entity or declare or pay any dividends, guaranty the obligations of a third party, incur indebtedness, and make certain investments. As of December 31, 2007, the Company was in compliance with all of its covenants.

Trust Preferred Securities

On February 22, 2006, the Company issued $20,000,000 of 30-year, mandatorily redeemable trust preferred securities (the “Trust Preferreds”) through a newly-formed unconsolidated wholly-owned subsidiary, NP Capital Trust I (“NP Trust”).

The Trust Preferreds mature on March 15, 2036, but may be redeemed at the Company’s option beginning March 15, 2011. The Trust Preferreds require quarterly distributions at a fixed rate of 8.70% per annum for five years, and thereafter at a variable rate, reset quarterly, equal to the three-month LIBOR rate plus 3.64%. Distributions are cumulative and will accrue from the date of the original issuance, but may be deferred for up to 20 consecutive quarterly periods.

The proceeds of the Trust Preferreds received by NP Trust, along with proceeds of $620,000 paid by the Company to NP Trust from the issuance of common securities by NP Trust to the Company, were used to purchase $20,620,000 of the Company’s junior subordinated debt securities under terms which mirror those of the Trust Preferreds. In accordance with the guidance given in Financial Accounting Standards Board Interpretation No. 46(R), “Consolidation of Variable Interest Entities an interpretation of ARB No. 51” (FIN No. 46(R)), the Company has not consolidated NP Trust. The Company is a sponsor of the Trust Preferreds and as defined in FIN No. 46(R) and should not consolidate conventional trust preferred securities even if the sponsor’s debt obligation, held by the trust as an asset, is callable by the sponsor.

This securities issuance is part of the Company’s long-term strategy to expand its operations through organic growth and acquisition in an opportunistic fashion and continue to strengthen the financial position of its underlying insurance company subsidiaries. The Company primarily invested the $19,310,000 of proceeds, which is net of $690,000 of issuance costs, in high-grade debt securities which will remain available to fund future contributions to its subsidiaries, acquisition activities as they may arise, and other capital uses. In June 2006 and September 2006, the Company contributed $3.0 million and $2.0 million of the funds, respectively, to North Pointe Casualty to meet the minimum statutory capital and surplus of $15.0 million required by many states for surplus lines carriers. In December 2006, the Company contributed $4.0 million to Home Pointe Insurance to meet statutory capital and surplus levels required by A.M. Best for its initial rating.

110

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Notes to Consolidated Financial Statements — (Continued)

The Company obtained consents and waivers from its senior lenders acknowledging that the purchase of its equity interest in and issuance of subordinated debt securities to NP Trust and the guaranty of the NP Trust’s preferred securities would not constitute an event of default under the senior credit facility.

The Company assumed the following additional trust preferred securities as part of the Capital City acquisition:

•  9.62% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust I — These debentures mature in December 2032. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after December 4, 2007. This debenture was paid in full on February 29, 2008 upon exercising the redemption option.

•  9.66% $6,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust II) — These debentures mature in May 2033. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after May 15, 2008.

•  9.49% $2,000,000 Trust preferred securities (Capital City Insurance Company, S.C. Statutory Trust III — These debentures mature in June 2034. These debentures are redeemable at par at the option of the Company, in whole or in part, on any interest payment date on or after June 17, 2009.

Mortgage Debt Obligation

On August 18, 2005, the Company assumed the mortgage on the office building in Southfield, Michigan after acquiring Northwest Zodiac. The mortgage loan terms include monthly principal and interest payments of $22,000 and a balloon payment of $1,899,000 due in June 2011. As of December 31, 2007, the mortgage debt obligation had an outstanding balance of $2,388,000.

Maturities of outstanding debt at December 31, 2007 are as follows:

Year	Amount
	(Dollars in thousands)
2008	$	130
2009		137
2010		21,425
2011		1,975
2012 and thereafter		30,620
Total debt	$	54,287

15.   Commitments and Contingent Liabilities

The Company occupies office space in Illinois and Florida under noncancelable operating leases with independent landlords. At December 31, 2007, future minimum lease payments were as follows:

	Minimum		Minimum
	Lease		Sublease			Net Future
Year Ended	Commitments		Revenue			Commitments
	(Dollars in thousands)
2008	$	1,736	$	(159	)	$	1,577
2009		1,423		(109	)		1,314
2010		650		(5	)		645
2011		151		(3	)		148
2012		33		—			33
	$	3,993	$	(276	)	$	3,717

111

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Notes to Consolidated Financial Statements — (Continued)

Lease expense was $1,588,000, $667,000, and $663,000 in 2007, 2006, and 2005, respectively. Sublease rental income was $252,000, $221,000 and $224,000 in 2007, 2006, and 2005, respectively.

In addition to the lease commitments, the Company has committed to a junior subordinated debt agreement, a senior credit facility, unpaid loss and loss adjustment expenses, and investments in a limited partnership. The junior subordinated debt agreement requires one $20,620,000 principal payment in 2036 and $448,000 quarterly interest payments. The senior credit facility provides for a revolving credit line in the aggregate amount of $35,000,000 maturing on July 1, 2010. The balance on the revolving credit line as of December 31, 2007 was $21,279,000. The Company is also obligated to pay a facility fee on any used portion of the revolving credit line which are due during the term of the revolving credit line. At December 31, 2007 the credit facility fee on the revolving credit line was 0.25%. The gross unpaid loss and loss adjustment expense of $172,264,000 were estimated to be paid over a five-year period based on historical payment patterns. However, future payments may be different than historical payment patterns. The Company contributed $1,152,000, $536,000 and $500,000 to a limited partnership in 2007, 2006 and 2005, respectively and is committed to make additional investments up to $759,000 any time through June 2010.

The Company is also subject to assessments imposed by the Citizens Property Insurance Corporation (“Citizens”), and the Florida Insurance Guaranty Association (“FIGA”) which was created by the State of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Citizens may impose assessments on insurance companies that write business in Florida to cover deficits, particularly in the event of significant hurricane losses. (See Note 16)

16.   Guaranty Funds and State Assessments

The Company’s insurance subsidiaries participate in the guaranty associations of the various states in which they write insurance business. Guaranty fund assessments are accrued at the time of insolvencies. The Company accrues for these costs when they can be reasonably estimated by management based upon the current information available.

The Company’s insurance subsidiaries are subject to assessments imposed by the Citizens Property Insurance Corporation (“Citizens”), which was created by the State of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Citizens may impose assessments to insurance companies that write business in Florida to cover deficits particularly in the event of significant hurricane losses. Citizens’ aggregate loss may be modified because of the difficulty of estimating ultimate hurricane losses. In addition, the Florida legislature may provide that existing or future Citizens’ deficits be recovered through means other than assessments to insurers. Citizens made no assessments prior to 2005.

FIGA services Florida policyholders’ claims for companies that become insolvent and are ordered into liquidation. To fund deficits that may exist within the insolvent companies, FIGA can assess other property and casualty insurance companies writing in Florida. In 2007, the Company received a regular assessment from FIGA for $750,000. The assessment equaled two percent of the Company’s $37.5 million direct written premiums in the State of Florida for 2006. In 2006, the Company received two assessments (a regular and an emergency) from FIGA, each for $1,361,000. Each assessment equaled two percent of the Company’s $68.1 million direct premiums written in the State of Florida in 2005. The regular assessment was received in the second quarter of 2006 and was paid in July 2006. The emergency assessment was received in the fourth quarter of 2006 and was paid in January 2007. FIGA has publicly proposed increasing the cap on any one year’s regular assessment from two percent to four percent. The 2006 assessments resulted from the liquidation of the POE Financial Insurance Group including Southern Family Insurance Company, Atlantic Preferred Insurance Company and Florida Preferred Property Insurance Company. In the event that carriers become insolvent in any state, including Florida, the Company could be subject to assessments from such states’ guaranty organizations.

112

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Notes to Consolidated Financial Statements — (Continued)

In August 2005, the Company was assessed $2,100,000 by Citizens in order to fund a reported $515,000,000 deficit related to the 2004 hurricanes at that time. After reinsurance, the Company expensed its retention of $131,000 plus $78,000 of reinstatement charges, in 2005. In anticipation of an assessment from Citizens, the Company accrued a liability of $6,393,000 and a $5,955,000 reinsurance recoverable as of December 31, 2005. The Company expensed its retention of $438,000 plus $170,000 of reinstatement charges in 2005. At December 31, 2005, the Company accrued for the Citizens’ assessment based on an estimated deficit of $1,700,000,000. In June 2006, the Florida Legislature appropriated $715,000,000 to help offset Citizens’ deficits. During the fourth quarter of 2006, the Company received and paid the actual assessment of $744,000 from Citizens’ that was calculated based on a $163,000,000 deficit. The change in Citizens’ deficit resulted in the Company recognizing income of $417,000 in 2006. In 2007, we did not receive any assessment from Citizens.

The South Carolina Property and Casualty Insurance Guaranty Association (“SCIGA”) services South Carolina policyholders’ claims for companies that become insolvent and are ordered into liquidation. To fund deficits that may exist within the insolvent companies, SCIGA can assess other property and casualty insurance companies writing in South Carolina. In 2007, we received an assessment from SCIGA for $678,000, which was equal to two percent of the Company’s $33.9 million direct premiums written of workers’ compensation business in the state of South Carolina in 2002. The assessment was received and paid in 2007. The assessment resulted from the liquidation of the Legion Insurance Company.

The Company incurred expenses related to guaranty fund assessments of $834,000 (including $862,000 of income attributable to the recoupment of prior Citizens’ and FIGA assessments and expense of $1,428,000 attributable to the current year FIGA and SCIGA assessments), $2,299,000 (including $417,000 of income attributable to the Citizens’ assessment and $2,765,000 attributable to the FIGA assessment), and $953,000 (including $816,000 of expenses attributable to the Citizens’ assessment) in 2007, 2006, and 2005, respectively. As of December 31, 2007 and 2006, the Company recorded a liability for guaranty fund assessments of $1,000 (related to an Illinois assessment) and $1,383,000 (attributable to FIGA), respectively.

Florida regulation allows insurance companies to recoup assessments through surcharges to policyholders after an assessment has been imposed and paid. To the extent reinsurers cover the assessment, they are reimbursed from surcharges collected by the Company.

17.   Related Party Transactions

An independent claims adjusting company, wholly-owned by a director of North Pointe Insurance and North Pointe Financial, who is also the father of the Vice President of Claims, provides claims services to the Company. Total fees for these services, which are included in the loss adjustment expenses, were $120,000, $130,000, and $150,000 in 2007, 2006 and 2005, respectively.

In September 2004, the Company sold the renewal rights of approximately 100 liquor liability policies to an insurance company for which the Company has a management services agreement providing all of the accounting, premium collections and claims adjusting and processing. The Company recorded revenues from management services provided to that insurance company of $65,000, $65,000, and $62,500 in 2007, 2006, and 2005, respectively. The Chief Executive Officer and Chief Operating Officer of the Company hold minority ownership interests in that insurance company.

A director of the Company’s board and minority shareholder of the Company was paid $10,000 in 2007 for consulting services relating to a one-time project involving the evaluation of a potential investment by the Company. In 2006 and 2005, this individual was paid $5,000 per month for monitoring and evaluating the investments of and providing investment advisory services to the Company. The Company expensed $10,000 in 2005 for this service which was terminated in February 2005. Beginning in October 2005, this individual was paid $5,000 per month, to assist the Company’s management in reviewing, evaluating and structuring possible future

113

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Notes to Consolidated Financial Statements — (Continued)

acquisitions. The Company expensed $60,000 and $15,000 in 2006 and 2005 for this service, respectively. This agreement was terminated in December 2006.

The Chief Executive Officer and the Chief Operating Officer were paid $33,000 and $5,000 per quarter, respectively, for their guarantees on the senior debt. The Company expensed $113,000 in 2005. In September 2005, the guarantees were terminated in conjunction with amended senior debt agreements eliminating the requirement for such guarantees.

The Chief Executive Officer owned a minority interest in Northwestern Zodiac, a partnership that owned the Southfield, Michigan office building occupied by the Company. Lease expense of $486,000 in 2005 was attributable to this building. A company wholly-owned by the Chief Operating Officer managed the building. Total fees for these services were $27,000 in 2005. In August 2005, the lease and management agreements were terminated when the Company acquired Northwestern Zodiac (see Note 1).

One of the directors of the Company is a shareholder, vice president and director of a law firm that provides legal services to the Company. The Company incurred legal expenses of $0, $0 and $9,000 in 2007, 2006 and 2005, respectively, for such services.

The son of a director of North Pointe Insurance and North Pointe Financial, who is also the brother of the Vice President of Claims, provides consulting services on a project basis, including the management of the internal controls process, complex high value claims work and other projects as they arise. The consulting services agreement provides for a monthly retainer of $20,000. The Company incurred consulting expenses of $220,000 in 2007 for such services (the December fees of $20,000 were paid in January 2008). The Company incurred $240,000 in 2006 and 2005 for such services.

18.   401(k) Profit Sharing Plan

The Company and its subsidiaries sponsor a contributory 401(k) profit-sharing plan. All employees of the Company and its subsidiaries who have completed three months of service and attained the age of 19 are eligible for participation in the plan. Company contributions, other than matching employee contributions up to 4 percent of compensation, are discretionary. Company contributions, including matching contributions, are fully vested after three years.

As of January 1, 2008, the Capital City companies were included in the aforementioned plan. Prior to January 1, 2008, the Capital City contributions, other than matching employee contributions up to an amount equal to 25% of the first 6% of employee’s elective contributions, were discretionary. No contributions in excess of 1.5% of employee compensation were made. All employees of the Capital City companies who have completed three months of service and attained the age of 21 were eligible for participation in the plan. Contributions, including matching contributions, are 20% vested after 2 years of service, with an additional 20% vesting each year until the sixth year of service.

In 2007, 2006 and 2005, the Company expensed $581,000, $398,000 and $500,000, respectively, relating to contributions to this plan.

114

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

19.   Earnings Per Share

Set forth below is the reconciliation between net income and income used to compute earnings per share, and the reconciliation between the number of weighted average shares outstanding for computing basic versus diluted earnings per share for the period ended December 31:

	2007		2006		2005
	(Dollars in thousands, except share data)
Net income from continuing operations	$	4,616	$	125	$	3,792
Net income from discontinued operations		5,709		4,551		58
Weighted average shares outstanding used for basic EPS		9,009,578		9,114,452		6,014,050
Effect of dilutive securities
Restricted stock		6,303		2,064		168
Weighted average shares outstanding used for diluted EPS		9,015,881		9,116,516		6,014,218
Basic earnings per share
Income from continuing operations	$	0.51	$	0.01	$	0.63
Income from discontinued operations		0.63		0.50		0.01
Diluted earnings per share
Income from continuing operations	$	0.51	$	0.01	$	0.63
Income from discontinued operations		0.63		0.50		0.01

As of December 31, 2007, 2006 and 2005, there were outstanding employee stock option awards which could eventually be exercised for up to 712,500, 472,500 and 402,500 shares of common stock, respectively. These potential additional shares outstanding were not included in the diluted earnings per share because they would be anti-dilutive.

Historical earnings per share amounts reflect an 8.49-for-one common stock split which occurred in September 2005.

20.   Statutory Capital and Surplus and Restrictions Thereon

As of December 31, 2007 and 2006, $390,851,000 and $236,842,000, respectively, of the consolidated assets of the Company represent assets of the Company’s insurance operations that are subject to regulation and may not be transferred in the form of dividends, loans or advances. Dividends paid by the Company’s insurance subsidiaries are subject to limitations imposed by the domiciliary states’ insurance codes (the “Codes”). In general, under the Codes, an insurance company may pay dividends only from statutory earnings and capital and surplus. In addition, prior approval is generally required if the fair value of a dividend or distribution together with that of other dividends and distributions made within the preceding 12 months, exceeds the greater of 10% of statutory capital and surplus as of December 31st of the preceding year or the statutory net income, excluding net realized investment gains, for the immediately preceding calendar year.

North Pointe Insurance may pay dividends of approximately $3,856,000 in 2008 without prior approval. However, the OFIS has the authority to prohibit payment of any dividend. North Pointe Casualty and Capital City Insurance Company may not pay dividends without prior approval in 2008. North Pointe Insurance, North Pointe Casualty and Midfield paid ordinary dividends of $5.0 million, $1.0 million and $3.0 million, respectively, in 2007. North Pointe Insurance declared a $500,000 stock dividend in 2005.

The senior debt facility prohibits the distribution of dividends from the Company to its common shareholders without prior approval.

115

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The National Association of Insurance Commissioners (“NAIC”) has adopted risk-based capital requirements that require insurance companies to calculate and report information under a risk-based capital formula. The risk-based capital formula attempts to measure statutory capital and surplus needs based on the risks in an insurance company’s mix of products and investment portfolio. The risk-based capital formula is used by state insurance regulators to monitor trends in an insurance company’s statutory capital and surplus, for the purpose, if necessary, of initiating regulatory action. The Company’s insurance subsidiaries are required to submit a report of their risk-based capital levels to their respective state regulators as of each calendar year end.

Under the formula, a company first determines its authorized control level risk-based capital. This authorized control level takes into account a company’s (1) asset risk; (2) credit risk; (3) underwriting risk; and (4) all other business risks and such other relevant risks as are set forth in the RBC instructions. The company then compares its total adjusted capital against its authorized control level risk-based capital to determine its actual risk-based capital level. A company’s total adjusted capital is the sum of statutory capital and surplus and such other items as the risk-based capital instructions may provide.

The risk-based capital requirements provide for four different levels of regulatory attention, each level providing an increasing degree of regulatory oversight and intervention as an insurance company’s risk based capital declines.

At December 31, 2007 the Company’s insurance subsidiaries had risk-based capital levels in excess of an amount that would require any regulatory intervention.

The Company’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by their respective states of domicile. North Pointe Insurance files under OFIS rules and regulations, North Pointe Casualty and Home Pointe Insurance file under FLDFS rules and regulations and Midfield files under DCDOI rules and regulations. The principle differences between financial statements prepared on the basis of GAAP and for statutory financial statements are: policy acquisition costs are not deferred; bonds are generally carried at amortized cost; deferred tax assets are subject to limitations; and certain assets are non-admitted and charged directly to surplus.

Statutory surplus at December 31, 2007, 2006 and 2005 and statutory net income of the Company’s insurance subsidiaries for the years then ended are as follows (unaudited):

	2007			2006		2005
	(Dollars in thousands)
Statutory capital and surplus
North Pointe Insurance	$	38,555		$	49,841	$	43,861
North Pointe Casualty		19,085			20,734		12,714
Midfield Insurance		6,763			8,199		5,828
Captial City Insurance Company		38,287			—		—
Statutory net income (loss)
North Pointe Insurance	$	(1,573	)	$	2,927	$	7,053
North Pointe Casualty		(366	)		939		(6,425	)
Midfield Insurance		1,560			2,293		617
Captial City Insurance Company		4,524			—		—

In 2007, the Company did not provide capital contributions to any of the insurance entities.

In 2006, the Company contributed $5,000,000 and $4,000,000 to North Pointe Casualty and Home Pointe Insurance, respectively, substantially derived from the net proceeds of the issuance of the trust preferred securities. The primary purpose of the contributions was to improve financial ratings.

116

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

In 2005, the Company contributed $10,000,000, $5,600,000, $7,500,000 and $5,000,000 to North Pointe Insurance, North Pointe Casualty, Home Pointe Insurance and Midfield, respectively, substantially derived from the net proceeds of the initial public offering. The primary purpose of the contributions was to support the anticipated future growth in premiums written and to improve financial ratings.

North Pointe Casualty recorded an unpaid contribution from its parent as a receivable in its statutory financial statements amounting to $600,000 as of December 31, 2005. This contribution was made to increase North Pointe Casualty’s statutory capital and surplus for regulatory purposes. The FLDFS permitted the receivable from its parent to be recorded as assets on its statutory balance sheet as of December 31, 2005. This accounting differs from the accounting practice promulgated by NAIC Statutory Accounting Practices (“SAP”). Under NAIC SAP, the receivables would not have been recognized as assets and North Pointe Casualty’s statutory capital and surplus would have been lower by $600,000 as of December 31, 2005. There were no unpaid contributions from its parent as of December 31, 2007 or December 31,2006.

21.   Segment Information

The Company evaluates its operations through four operating segments: commercial lines insurance, personal lines insurance, agency services and administrative services. The Company offered property and casualty insurance products in 49, 47, and 34 states in 2007, 2006, and 2005, respectively. Gross premiums written in Florida and Michigan accounted for 36.1% and 15.9%, respectively, of total gross premiums written in 2007, 47.3% and 20.1%, respectively, of total gross premiums written in 2006, and 66.8% and 17.6%, respectively, of total gross premiums written in 2005.

The commercial lines segment covers the hospitality (including liquor liability) and bowling industries, other small commercial accounts (including business owners policies), workers compensation, commercial automobiles and certain other, minor programs.

The personal lines segment provides insurance for standard and non-standard homeowners insurance in Florida and non-standard homeowners in Illinois, Indiana and Iowa. The Company ceased writing non-standard private passenger automobile coverage in October 2004, which coverage was only offered in Michigan.

Substantially all revenues generated from commercial and personal lines are from non-affiliated sources. The Company does not have a reliance on any major customer. Substantially all of the revenues from the administrative services segment are derived from services provided to the commercial and personal lines segments which are operated within the affiliated insurance companies. The remaining revenues are derived from non-affiliated sources for installment fees, commissions and premium finance activities.

The agency services segment earns commission revenue through the operation of retail insurance agency and wholesale brokerage operations located in the Southeastern United States. The agency operations produce commercial, personal lines, life, and accident and health insurance with more than fifty unaffiliated insurance carriers. The brokerage operations produce commercial insurance with more than twenty unaffiliated insurance carriers.

The administrative services segment is operated within the non-insurance companies. Intercompany service agreements, which have been approved by the respective state insurance departments, are in place to stipulate the administrative services to be provided by the administrative services operations and corresponding fees to be paid by the insurance companies.

The Company evaluates segment profitability based on income before federal income taxes and extraordinary items. Expense allocations are based on certain assumptions and estimates; stated segment operating results would change if different methods were applied. The Company does not allocate assets, investment income, interest expense or income taxes to operating segments. In addition, the Company does not separately identify depreciation and amortization expense by segment and therefore disclosure is impracticable.

117

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

The following are the revenues and income (loss) before federal income tax expense and extraordinary item for the years ended December 31, 2007, 2006 and 2005 by operating segment.

	2007			2006			2005
	(Dollars in thousands)
Total revenues from continuing operations
Commercial lines products
Liability	$	45,075		$	27,384		$	23,720
Property		12,467			7,320			6,299
Commercial multi-peril		1,660			15,932			22,230
Commercial automobile		10,702			5,823			6,156
Workers compensation		14,018			—			—
Other		4,509			2,997			2,661
Total commercial lines		88,431			59,456			61,066
Personal lines products
Personal automobile		—			—			1,459
Homeowners		4,905			7,195			22,184
Other		843			—			—
Total personal lines		5,748			7,195			23,643
Administrative services
Affiliated companies		31,770			25,504			33,232
Nonaffiliated companies		2,500			1,369			1,901
Total administrative services		34,270			26,873			35,133
Agency services		5,783			—			—
Corporate and eliminations
Investment activity		11,996			5,517			3,697
Eliminations		(33,404	)		(25,504	)		(33,232	)
Total revenues	$	112,824		$	73,537		$	90,307

118

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

	2007			2006			2005
	(Dollars in thousands)
Income (loss) from continuing operations before federal income tax expense
Commercial lines products
Liability	$	11,964		$	10,700		$	3,033
Property		(2,625	)		(2,237	)		(2,086	)
Commercial multi-peril		(9,576	)		(4,540	)		(1,299	)
Commercial automobile		(7,923	)		(828	)		(637	)
Workers compensation		5,557			—			—
Other		(627	)		38			343
Total commercial lines		(3,230	)		3,133			(646	)
Personal lines products
Personal automobile		326			(2,447	)		367
Homeowners		613			(3,056	)		(2,249	)
Other		(463	)		—			—
Total personal lines		476			(5,503	)		(1,882	)
Administrative services		981			363			6,961
Agency services		980			—			—
Corporate
Investment activity		11,996			5,517			3,697
Other expense, net		(4,832	)		(3,375	)		(2,341	)
Total income from continuing operations before federal income taxes	$	6,371		$	135		$	5,789

22.   Subsequent Events

On January 3, 2008, the Company entered into an agreement and Plan of Merger with QBE Holdings, Inc. (“QBE”), a Delaware corporation, and Noble Acquisition Corporation, a Michigan corporation and wholly owned direct subsidiary of QBE. Under the terms of the Merger Agreement, Noble Acquisition Corporation will be merged with and into the Company, and as a result the Company will continue as the surviving corporation and a wholly owned subsidiary of QBE.

Subject to the terms and conditions set for in the Merger Agreement, at the effective time of the Merger each outstanding share of common stock of the Company will be canceled and converted into the right to receive $16.00 in cash per share without interest and subject to withholding taxes. In addition, at or prior to the effective time of the Merger, each outstanding option to purchase common stock (vested or unvested) will be canceled and the holder will be entitled to receive an amount of cash equal to the difference between the Merger consideration and the exercise price of the applicable stock option without interest and less any required withholding taxes.

The closing of the Merger is expected to occur in the first half of 2008. The Merger is subject to the approval of the Company’s shareholders, certain regulatory approvals and the satisfaction or waiver of other customary closing conditions. The Merger is not subject to a financing condition.

119

North Pointe Holdings Corporation and Subsidiaries

Notes to Consolidated Financial Statements — (Continued)

On January 23, 2008, the Company through its wholly owned subsidiary, North Pointe Financial, completed the sale of Home Pointe Insurance to American Capital Assurance Corp., a subsidiary of Safe Harbour Holdings, LLC, a Florida domiciled insurance holding company. Home Pointe Insurance conducted all of the Company’s Florida homeowners and dwelling fire operations in 2007. At closing, the Company received $15.7 million in cash which approximated book value. Pursuant to the sale agreement, the Company agreed to retain and settle claims incurred prior to closing. The cash equivalent to these reserves which approximated $1.4 million was received at closing.

120

15(a)(2) Financial statement schedules required by Item 15(d).

North Pointe Holdings Corporation

Schedule I
Summary of Investments — Other than Investments in Related Parties

	December 31, 2007
					Amount at Which
					Shown in the
	Cost		Fair Value		Balance Sheet
	(Dollars in thousands)
Fixed Maturities:
Bonds:
U.S. government and agency securities	$	14,454	$	15,077	$	15,077
Foreign government securities		304		307		307
Corporate bonds		38,659		38,516		38,516
Municipal securities		67,012		68,393		68,393
Mortgage-backed securities		65,526		66,185		66,185
Asset-backed securities		12,229		12,203		12,203
Total fixed maturities		198,184		200,681		200,681
Equity Securities:
Common stocks
Public utilities		24		24		24
Banks, trust and insurance companies		571		496		496
Industrial, miscellaneous and all other		2,740		2,534		2,534
Preferred stocks		1,000		1,037		1,037
Total equity securities		4,335		4,091		4,091
Other Investments		2,241		2,241		2,241
Total investments	$	204,760	$	207,013	$	207,013

121

North Pointe Holdings Corporation (Parent Company Only)

Schedule II — Condensed Financial Information of Registrant

Condensed Balance Sheets

	December 31,
	2007		2006
	(Dollars in thousands)
ASSETS
Investment in subsidiaries*	$	144,549	$	101,579
Federal income taxes-current		—		401
Federal income taxes-deferred		443		289
Cash		387		10,606
Other assets		1,321		1,401
Total assets	$	146,700	$	114,276
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued expenses	$	471	$	235
Federal income taxes payable		490		—
Due to affiliates*		5,586		5,186
Debt		41,899		20,620
Total liabilities		48,446		26,041
Shareholders’ equity:
Common stock		49,041		50,578
Retained earnings		47,654		37,329
Accumulated other comprehensive income		1,559		328
Total shareholders’ equity		98,254		88,235
Total liabilities and shareholders’ equity	$	146,700	$	114,276

* Eliminated in consolidation.

These condensed financial statements should be read in conjunction with the accompanying consolidated financial statements and notes thereto of North Pointe Holdings Corporation and Subsidiaries.

See notes to condensed financial statements.

122

North Pointe Holdings Corporation (Parent Company Only)

Schedule II — Condensed Financial Information of Registrant — (Continued)

Condensed Statements of Income

	Years Ended
	2007			2006			2005
	(Dollars in thousands)
Revenues
Dividends from subsidiaries*	$	12,000		$	100		$	6,000
Other Income		332			615			—
		12,332			715			6,000
Expenses
Interest expense		2,635			1,559			899
Other operating costs and expenses		2,305			1,938			1,485
		4,940			3,497			2,384
Income (loss) before income tax benefit and equity in earnings of consolidated subsidiaries		7,392			(2,782	)		3,616
Income tax benefit		(1,664	)		(977	)		(814	)
Income (loss) from continuing operations before equity in undistributed earnings of subsidiaries		9,056			(1,805	)		4,430
Equity in undistributed net (loss) income from continuing operations of consolidated subsidiaries*		(4,440	)		1,930			(638	)
Income from continuing operations — net of tax		4,616			125			3,792
Income from discontinued operations — net of tax		5,709			4,551			58
Net income	$	10,325		$	4,676		$	3,850

* Eliminated in consolidation.

These condensed financial statements should be read in conjunction with the accompanying consolidated financial statements and notes thereto of North Pointe Holdings Corporation and Subsidiaries.

See notes to condensed financial statements.

123

North Pointe Holdings Corporation (Parent Company Only)

Schedule II — Condensed Financial Information of Registrant — (Continued)

Condensed Statements of Shareholders’ Equity and Comprehensive Income

	Years Ended
	2007			2006		2005
	(Dollars in thousands)
Shareholders’ equity as of January 1,	$	88,235		$	82,227	$	34,692
Issuance of stock		67			48		44,270
Change in stock-based employee compensation		531			297		83
Purchase and retirement of common stock		(2,135	)		—		—
Comprehensive income
Net income		10,325			4,676		3,850
Unrealized gain (loss) on investments		1,231			987		(668	)
Total comprehensive income		11,556			5,663		3,182
Shareholders’ equity as of December 31,	$	98,254		$	88,235	$	82,227

These condensed financial statements should be read in conjunction with the accompanying consolidated financial statements and notes thereto of North Pointe Holdings Corporation and Subsidiaries.

See notes to condensed financial statements.

124

North Pointe Holdings Corporation (Parent Company Only)

Schedule II — Condensed Financial Information of Registrant — (Continued)

Condensed Statements of Cash Flows

	For the Years Ended
	2007			2006			2005
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,325		$	4,676		$	3,850
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in undistributed (income) loss of consolidated subsidiaries		(1,269	)		(6,479	)		580
Unearned stock compensation		598			345			82
Changes in:
Other assets		80			(90	)		766
Intercompany receivable or payable		400			1,520			(9,815	)
Accounts payable and accrued expenses		236			167			(88	)
Income taxes		737			2,374			(1,826	)
Net cash provided by (used in) operating activities		11,107			2,513			(6,451	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Contributions to subsidiaries		—			(9,000	)		(20,000	)
Capital contribution to NP Capital Trust I		—			(620	)		—
Purchase of subsidiary		(40,470	)		—			—
Net cash used in investing activities		(40,470	)		(9,620	)		(20,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		—			—			44,270
Purchases and retirement of common stock		(2,135	)		—			—
Proceeds from issuance of debt (net of $690 of issuance costs paid in 2006)		25,298			21,874			38,014
Repayment of bank debt		(4,019	)		(4,345	)		(55,676	)
Net cash provided by financing activities		19,144			17,529			26,608
Change in cash		(10,219	)		10,422			157
Cash, beginning of year		10,606			184			27
Cash, end of year	$	387		$	10,606		$	184

These condensed financial statements should be read in conjunction with the accompanying consolidated financial statements and notes thereto of North Pointe Holdings Corporation and Subsidiaries.

See notes to condensed financial statements.

125

North Pointe Holdings Corporation (Parent Company Only)

Schedule II — Condensed Financial Information of Registrant — (Continued)

Notes to Condensed Financial Statements

The accompanying condensed financial statements of North Pointe Holdings Corporation (the “Registrant”) should be read in conjunction with the consolidated financial statements and notes thereto of North Pointe Holdings Corporation and Subsidiaries included else where in this prospectus.

Investments in subsidiaries includes $122.1 million and $98.0 million of investments in the Registrant’s insurance company subsidiaries as of December 31, 2007 and 2006, respectively. The insurance companies’ net assets are subject to regulation and are substantially restricted as to what can be transferred to the Registrant in the form of dividends, loans or advances.

Refer to the North Pointe Holdings Corporation and Subsidiaries December 31, 2007 audited consolidated financial statements and notes thereto for detailed information on long-term obligations and stock rights.

126

North Pointe Holdings Corporation and Subsidiaries

Schedule III
Supplementary Insurance Information
For the Year Ended December 31, 2007

(A)	(B)		(C)		(D)		(E)		(F)
			Future Policy				Other
			Benefits,				Policy
	Deferred		Losses,				Claims
	Policy		Claims and				and
	Acquisition		Loss		Unearned		Benefits		Premium
Segment	Costs		Expenses		Premiums		Payable		Revenue
	(Dollars in thousands)
Personal lines	$	2,180	$	7,410	$	7,106	$	—	$	5,748
Commercial lines		11,551		164,854		56,203		—		88,431
Administrative operations		—		—		—		—		—
Total	$	13,731	$	172,264	$	63,309	$	—	$	94,179

(A)	(G)		(H)			(I)			(J)			(K)
						Amortization
			Benefits,			of Deferred
	Net		Claims,			Policy			Other			Net
	Investment		Settlement			Acquistion			Operating			Premiums
Segment	Income		Expenses			Costs			Expenses			Written
Personal lines	$	—	$	2,168		$	1,625		$	1,478		$	10,600
Commercial lines		—		53,030			22,752			15,879			96,808
Administrative operations		—		—			17,959			13,423			—
Agency services		—		—			—			4,803			—
Corporate		8,676		—			—			3,431			—
Eliminations		—		(1,650	)		(20,673	)		(11,033	)		—
Total	$	8,676	$	53,548		$	21,663		$	27,981		$	107,408

127

North Pointe Holdings Corporation and Subsidiaries

Schedule III
Supplementary Insurance Information
For the Year Ended December 31, 2006

(A)	(B)		(C)		(D)		(E)		(F)
			Future Policy				Other
			Benefits,				Policy
	Deferred		Losses,				Claims
	Policy		Claims and				and
	Acquisition		Loss		Unearned		Benefits		Premium
Segment	Costs		Expenses		Premiums		Payable		Revenue
	(Dollars in thousands)
Personal lines	$	426	$	13,982	$	6,483	$	—	$	59,456
Commercial lines		8,422		75,773		35,837		—		7,195
Administrative operations		—		—		—		—		—
Total	$	8,848	$	89,755	$	42,320	$	—	$	66,651

(A)	(G)		(H)		(I)			(J)			(K)
					Amortization
			Benefits,		of Deferred
	Net		Claims,		Policy			Other			Net
	Investment		Settlement		Acquistion			Operating			Premiums
Segment	Income		Expenses		Costs			Expenses			Written
Personal lines	$	—	$	7,122	$	3,080		$	2,495		$	4,987
Commercial lines		—		23,752		17,593			14,978			56,140
Administrative operations		—		—		15,096			11,192			—
Corporate		5,731		—		—			1,866			—
Eliminations		—		—		(16,733	)		(8,750	)		—
Total	$	5,731	$	30,874	$	19,036		$	21,781		$	61,127

128

North Pointe Holdings Corporation and Subsidiaries

Schedule III
Supplementary Insurance Information
For the Year Ended December 31, 2005

(A)	(B)		(C)		(D)		(E)		(F)
			Future Policy				Other
			Benefits,				Policy
	Deferred		Losses,				Claims
	Policy		Claims and				and
	Acquisition		Loss		Unearned		Benefits		Premium
Segment	Costs		Expenses		Premiums		Payable		Revenue
	(Dollars in thousands)
Personal lines	$	1,241	$	35,663	$	5,709		—	$	23,643
Commercial lines		8,337		82,115		38,992		—		61,066
Administrative operations		—		—		—		—		—
Total	$	9,578	$	117,778	$	44,701		—	$	84,709

(A)	(G)		(H)		(I)			(J)			(K)
					Amortization
			Benefits,		of Deferred
	Net		Claims,		Policy			Other			Net
	Investment		Settlement		Acquistion			Operating			Premiums
Segment	Income		Expenses		Costs			Expenses			Written
Personal lines	$	—	$	14,766	$	6,830		$	3,929		$	22,790
Commercial lines		—		29,205		17,634			14,874			63,289
Administrative operations		—		—		18,958			9,118			—
Corporate		3,865		—		—			1,472			—
Eliminations		—		—		(21,646	)		(11,581	)		—
Total	$	3,865	$	43,971	$	21,776		$	17,812		$	86,079

129

North Pointe Holdings Corporation

Schedule IV — Reinsurance

									Percentage
			Ceded to		Assumed				of Amount
	Gross		Other		from Other		Net		Assumed
	Amount		Companies		Companies		Amount		to Net
	(Dollars in thousands)
Year ended December 31, 2007
Premiums earned:
Property and liability	$	106,684	$	15,607	$	3,102	$	94,179		3.29	%
Accident and health		—		—		—		—		0.00	%
Total premiums	$	106,684	$	15,607	$	3,102	$	94,179
Year ended December 31, 2006
Premiums earned:
Property and liability	$	95,625	$	29,001	$	27	$	66,651		0.04	%
Accident and health		—		—		—		—		0.00	%
Total premiums	$	95,625	$	29,001	$	27	$	66,651
Year ended December 31, 2005
Premiums earned:
Property and liability	$	107,909	$	24,683	$	1,288	$	84,514		1.52	%
Accident and health		454		259		—		195		0.00	%
Total premiums	$	108,363	$	24,942	$	1,288	$	84,709

130

North Pointe Holdings Corporation and North Pointe Companies

Schedule VI
Supplemental Information Concerning Property and Casualty Insurance Operations

	Losses and Loss
	Adjustment					Paid Losses
	Expenses Incurred					and Loss
	Related to					Adjustment
	Current Year		Prior Years			Expenses
	(Dollars in thousands)
For the Years Ended December 31,
2007	$	50,238	$	3,310		$	51,925
2006	$	37,869	$	(2,494	)	$	36,685
2005	$	49,438	$	(5,435	)	$	46,276

Pursuant to Rule 12-18 of Regulation S-X. See Schedule III for the additional information required in Schedule VI.

131

15(a)(3) Exhibits.

EXHIBIT INDEX

Exhibit No			Description
	3	.1*	Second Amended and Restated Articles of Incorporation of North Pointe Holdings Corporation.
	3	.2 ▼	Second Amended and Restated Bylaws of North Pointe Holdings Corporation.
	10	.1+	Equity Incentive Plan as of November 2007.
	10	.2 «	Amendment No. 2 to the Second Amendment and Restated Credit Agreement, dated as of July 2, 2007, by and among the lenders, Comerica Bank, as agent, and North Pointe Holdings Corporation.
	10	.3 «	$10,500,000 Revolving Credit Note, dated as of July 2, 2007, made by North Pointe Holdings Corporation in favor of Fifth Third Bank.
	10	.4 «	$10,500,00 Revolving Credit Note, dated July 2, 2007, made by North Pointe Holdings Corporation in favor of JPMorgan Chase Bank, N.A.
	10	.5 «	$14,000,000 Revolving Credit Note, dated July 2, 2007, made by North Pointe Holdings Corporation in favor of Comerica Bank.
	10	.6 «	Stock Pledge Agreement, dated July 2, 2007, by and among Capital City Acquisition Corp. and Comerica Bank, as agent.
	10	.7 «	Security Agreement, dated July 2, 2007, by and among Capital City Acquisition Corp., Capital Collection Services, Inc., Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. and Comerica Bank, as agent.
	10	.8*+	Employment Agreement by and between North Pointe Holdings Corporation and James G. Petcoff, dated June 10, 2005.
	10	.9*+	North Pointe Holdings Corporation Annual Incentive Compensation Plan.
	10	.10	Intentionally Omitted.
	10	.11*+	Employment Agreement by and between North Pointe Holdings Corporation and B. Matthew Petcoff, dated June 10, 2005.
	10	.7*	Investment Advisory Agreement, dated July 6, 2004, between North Pointe Insurance Company and JPMorgan Investment Advisors Inc. (formerly Banc One Investment Advisors Corporation).
	10	.8*	Investment Advisory Agreement, dated September 13, 2004, between North Pointe Insurance Company and Munder Capital Management.
	10	.9 u	North Pointe Holdings Corporation Investment Policy and Guidelines Dated as of September 17, 2007.
	10	.10**	Second Amended and Restated Credit Agreement, dated as of June 30, 2006, by and among the lenders, Comerica Bank, as agent, and North Pointe Holdings Corporation.
	10	.11**	Amended and Restated Pledge Agreement, dated June 30, 2006, by and between North Pointe Holdings and Comerica Bank as agent.
	10	.12**	Third Amended and Restated Stock Pledge Agreement, dated June 30, 2006, by and between North Pointe Financial Services, Inc. and Comerica Bank as agent.
	10	.13**	Second Amended and Restated Security Agreement, dated as of June 30, 2006, by and among certain of North Pointe Holdings Corporation’s subsidiaries, and Comerica Bank as agent.
	10	.14*	Line of Credit Loan Agreement, dated March 4, 2005, by and between N.P. Premium Finance Company and North Pointe Financial Services, Inc.
	10	.15*	Line of Credit Note in the amount of $1,500,000, dated March 4, 2005, by N.P. Premium Finance Company in favor of North Pointe Financial Services, Inc.
	10	.16*+	Consulting Agreement, dated March 5, 2003, by and between North Pointe Insurance Company and LVM Company
	10	.17*+	Consulting Agreement dated September 30, 2005, by and between North Pointe Holdings Corporation and Joon Moon.

132

Exhibit No			Description
	10	.18+	Separation and Consulting Agreement dated January 3, 2008, by and between QBE Holdings, Inc., North Pointe Holdings Corporation and James G. Petcoff.
	10	.19*	Agreement between North Pointe Insurance Company and C.S.A.C. Agency dated May 30, 2000.
	10	.20*	Agency Agreement, dated June 1, 2004, by and between North Pointe Insurance Company and Amelia Underwriters, Inc.
	10	.21*	Agency Agreement, dated March 24, 2003, by and between North Pointe Insurance Company and Insurance Brokers of Indiana.
	10	.22*	Reinsurance and Indemnity Agreement, effective July 1, 2003, by and between North Pointe Insurance Company and Universal Fire & Casualty.
	10	.23*	Agreement, dated December 3, 2002, by and between North Pointe Insurance Company and the Associated Food Dealers of Michigan.
	10	.24•	Amended and Restated Trust Agreement among North Pointe Holdings Corporation, as Depositor, LaSalle Bank National Association as Property Trustee, Christiana Bank and Trust Company as Delaware Trustee and the Administrative Trustee dated as of February 22, 2006.
	10	.25•	Guarantee Agreement between North Pointe Holdings Corporation a Guarantor and LaSalle Bank National Association as Guarantee Trustee dated February 22, 2006.
	10	.26•	Purchase Agreement among North Pointe Holdings Corporation, NP Capital Trust I and Merrill Lynch International dated as of February 22, 2006.
	10	.27•	Junior Subordinated Indenture between North Pointe Holdings Corporation and LaSalle Bank National Association as Trustee, Dated February 22, 2006.
	10	.28•	Waiver and Consent Letter Dated February 21, 2005, to the Amended and Restated Credit Agreement, dated January 26, 2004, by and between North Pointe Holdings Corporation and Comerica Bank, as agent for the various financial institutions.
	10	.29•	Waiver Letter Dated February 28, 2005, to the Amended and Restated Credit Agreement, dated January 26, 2004, by and between North Pointe Holdings Corporation and Comerica Bank, as agent for the various financial institutions.
	10	.30*	Agreement, dated November 10, 2004, between the Florida Department of Financial Services, as Receiver for American Superior Insurance Company and North Pointe Casualty Insurance Company.
	10	.31•	Assumption of Mortgage Agreement for the Purchase Agreement regarding 28819 Franklin Road, Southfield, Michigan, 48034, dated August 18, 2005.
	10	.32•	Purchase Agreement, dated February 11, 2005, by and among North Pointe Financial Services, Inc., as Buyer, and S. James Clarkson and Petcoff Financial Services, L.L.C., as Sellers.
	10	.33*	Investment Advisory Agreement, dated June 16, 2004, between North Pointe Casualty Insurance Company and JPMorgan Investment Advisors Inc. (formerly Banc One Investment Advisors Corporation).
	10	.34*	Investment Management Agreement, dated June 10, 2005, between JPMorgan Investment Advisors Inc. and Home Pointe Insurance Company.
	10	.35 ∆+	Form of stock option award.
	10	.36 ∆+	Form of restricted stock option award.
	10	.37+	First Amendment to the Employment Agreement by and between North Pointe Holdings Corporation and James G. Petcoff, dated January 1, 2007.
	10	.38+	First Amendment to the Employment Agreement by and between North Pointe Holdings Corporation and B. Matthew Petcoff, dated January 1, 2007.
	10	.39 5	Amendment to the Consulting Agreement by and between North Pointe Insurance Company and LVM Company, dated April 6, 2006.
	10	.40 5	Managing General Agency Agreement by and between North Pointe Insurance Company and South Pointe Financial Services, Inc., dated July 1, 2006.
	10	.41 5	Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated September 1, 2006.

133

Exhibit No			Description
	10	.42 5	Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.43 5	Addendum Number 1 to Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.44 5	Reinsurance Agreement by and between North Pointe Casualty Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.45**	$10,000,000 Revolving Credit Note, dated as of June 30, 2006, made by North Pointe Holdings Corporation in favor of Comerica Bank.
	10	.46**	$3,000,000 Swing Line Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation in favor of Comerica Bank.
	10	.47**	$7,500,000 Revolving Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation, in favor of Fifth Third Bank, with Comerica Bank as agent.
	10	.48**	$7,500,000 Revolving Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation, in favor of JP Morgan Chase Bank, N.A., with Comerica as agent.
	10	.49 «	Stock Purchase Agreement by and among Hinton G. Davis, HGD Investment LP, First Venture Holdings, L.L.C., Mary Teresa Davis Tanner, Hinton G. Davis III Grantor Trust, Susan Cheri Davis McMillan, Capital City Acquisition Corp., and North Pointe Holdings Corporation Relating to the Purchase and Sale of 100% of the Capital Stock of Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. Dated as of May 11, 2007.
	10	.50 «	First Amendment to the Stock Purchase Agreement by and among Hinton G. Davis, HGD Investment LP, First Venture Holdings, L.L.C., Mary Teresa Davis Tanner, Hinton G. Davis III Grantor Trust, Susan Cheri Davis McMillan, Capital City Acquisition Corp., and North Pointe Holdings Corporation Relating to the Purchase and Sale of 100% of the Capital Stock of Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. Dated as of July 2, 2007.
	10	.51 u	Stock Purchase Agreement by and among Safe Harbour Holdings, L.L.C., American Capital Assurance Corp., North Pointe Holdings Corporation and North Pointe Financial Services, Inc., Relating to the Purchase and Sale of 100% of the Capital Stock of Home Pointe Insurance Company Dated as of October 22, 2007.
	10	.52 ¡+	Agreement regarding Employment, by and between North Pointe Holdings Corporation and Brian J. Roney dated November 2, 2007.
	10	.53+	Amendment to the Consulting Agreement by and between North Pointe Insurance Company and LVM Company, dated September 7, 2007.
	10	.54¥	Agreement and Plan of Merger dated as of January 3, 2008 among North Pointe Holdings Corporation, Noble Acquisition Corporation and QBE Holdings, Inc.
	21	.1	Subsidiaries of North Pointe Holdings Corporation.
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934.
	32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934.

*	Previously filed with the Registration Statement on Form S-1 dated September 23, 2005.
•	Previously filed with the Form 10-K for the year ended December 31, 2005.
**	Previously filed with the Form 10-Q for the quarter ended June 30, 2006.
∆	Previously filed with the Form 10-Q for the quarter ended September 30, 2005.
5	Previously filed with Form 10-K for the year ended December 31, 2006

134

«	Previously filed with Form 10-Q for the quarter ended June 30, 2007.
u	Previously filed with Form 10-Q for the quarter ended September 30, 2007.
▼	Previously filed with Form 8-K filed on January 8, 2008.
¥	Previously filed with DEF14A Proxy Filings filed on January 9, 2008 and March 7, 2008.
¡	Previously filed with Form 8-K filed on January 16, 2008.
+	Compensatory plan or arrangement.

135

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NORTH POINTE HOLDINGS CORPORATION

By:  /s/  James G. Petcoff

James G. Petcoff

Chief Executive Officer, President

and Chairman of the Board

Date:          

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  James G. PetcoffJames G. Petcoff	Chief Executive Officer, President & Chairman of the Board	March 31, 2008
/s/  B. Matthew PetcoffB. Matthew Petcoff	Chief Operating Officer, Executive Vice President & Director	March 31, 2008
/s/  Brian J. RoneyBrian J. Roney	Chief Financial Officer & Senior Vice President	March 31, 2008
/s/  Richard J. LindbergRichard J. Lindberg	Director	March 31, 2008
/s/  Joon S. MoonJoon S. Moon	Director	March 31, 2008
/s/  Jorge J. MoralesJorge J. Morales	Director	March 31, 2008
/s/  R. Jamison Williams, Jr.R. Jamison Williams, Jr.	Director	March 31, 2008

136

EXHIBIT INDEX

Exhibit No			Description
	3	.1*	Second Amended and Restated Articles of Incorporation of North Pointe Holdings Corporation.
	3	.2 ▼	Second Amended and Restated Bylaws of North Pointe Holdings Corporation.
	10	.1+	Equity Incentive Plan as of November 2007.
	10	.2 «	Amendment No. 2 to the Second Amendment and Restated Credit Agreement, dated as of July 2, 2007, by and among the lenders, Comerica Bank, as agent, and North Pointe Holdings Corporation.
	10	.3 «	$10,500,000 Revolving Credit Note, dated as of July 2, 2007, made by North Pointe Holdings Corporation in favor of Fifth Third Bank.
	10	.4 «	$10,500,00 Revolving Credit Note, dated July 2, 2007, made by North Pointe Holdings Corporation in favor of JPMorgan Chase Bank, N.A.
	10	.5 «	$14,000,000 Revolving Credit Note, dated July 2, 2007, made by North Pointe Holdings Corporation in favor of Comerica Bank.
	10	.6 «	Stock Pledge Agreement, dated July 2, 2007, by and among Capital City Acquisition Corp. and Comerica Bank, as agent.
	10	.7 «	Security Agreement, dated July 2, 2007, by and among Capital City Acquisition Corp., Capital Collection Services, Inc., Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. and Comerica Bank, as agent.
	10	.8*+	Employment Agreement by and between North Pointe Holdings Corporation and James G. Petcoff, dated June 10, 2005.
	10	.9*+	North Pointe Holdings Corporation Annual Incentive Compensation Plan.
	10	.10	Intentionally Omitted.
	10	.11*+	Employment Agreement by and between North Pointe Holdings Corporation and B. Matthew Petcoff, dated June 10, 2005.
	10	.7*	Investment Advisory Agreement, dated July 6, 2004, between North Pointe Insurance Company and JPMorgan Investment Advisors Inc. (formerly Banc One Investment Advisors Corporation).
	10	.8*	Investment Advisory Agreement, dated September 13, 2004, between North Pointe Insurance Company and Munder Capital Management.
	10	.9 u	North Pointe Holdings Corporation Investment Policy and Guidelines Dated as of September 17, 2007.
	10	.10**	Second Amended and Restated Credit Agreement, dated as of June 30, 2006, by and among the lenders, Comerica Bank, as agent, and North Pointe Holdings Corporation.
	10	.11**	Amended and Restated Pledge Agreement, dated June 30, 2006, by and between North Pointe Holdings and Comerica Bank as agent.
	10	.12**	Third Amended and Restated Stock Pledge Agreement, dated June 30, 2006, by and between North Pointe Financial Services, Inc. and Comerica Bank as agent.
	10	.13**	Second Amended and Restated Security Agreement, dated as of June 30, 2006, by and among certain of North Pointe Holdings Corporation’s subsidiaries, and Comerica Bank as agent.
	10	.14*	Line of Credit Loan Agreement, dated March 4, 2005, by and between N.P. Premium Finance Company and North Pointe Financial Services, Inc.
	10	.15*	Line of Credit Note in the amount of $1,500,000, dated March 4, 2005, by N.P. Premium Finance Company in favor of North Pointe Financial Services, Inc.
	10	.16*+	Consulting Agreement, dated March 5, 2003, by and between North Pointe Insurance Company and LVM Company
	10	.17*+	Consulting Agreement dated September 30, 2005, by and between North Pointe Holdings Corporation and Joon Moon.
	10	.18+	Separation and Consulting Agreement dated January 3, 2008, by and between QBE Holdings, Inc., North Pointe Holdings Corporation and James G. Petcoff.
	10	.19*	Agreement between North Pointe Insurance Company and C.S.A.C. Agency dated May 30, 2000.
	10	.20*	Agency Agreement, dated June 1, 2004, by and between North Pointe Insurance Company and Amelia Underwriters, Inc.

Exhibit No			Description
	10	.21*	Agency Agreement, dated March 24, 2003, by and between North Pointe Insurance Company and Insurance Brokers of Indiana.
	10	.22*	Reinsurance and Indemnity Agreement, effective July 1, 2003, by and between North Pointe Insurance Company and Universal Fire & Casualty.
	10	.23*	Agreement, dated December 3, 2002, by and between North Pointe Insurance Company and the Associated Food Dealers of Michigan.
	10	.24•	Amended and Restated Trust Agreement among North Pointe Holdings Corporation, as Depositor, LaSalle Bank National Association as Property Trustee, Christiana Bank and Trust Company as Delaware Trustee and the Administrative Trustee dated as of February 22, 2006.
	10	.25•	Guarantee Agreement between North Pointe Holdings Corporation a Guarantor and LaSalle Bank National Association as Guarantee Trustee dated February 22, 2006.
	10	.26•	Purchase Agreement among North Pointe Holdings Corporation, NP Capital Trust I and Merrill Lynch International dated as of February 22, 2006.
	10	.27•	Junior Subordinated Indenture between North Pointe Holdings Corporation and LaSalle Bank National Association as Trustee, Dated February 22, 2006.
	10	.28•	Waiver and Consent Letter Dated February 21, 2005, to the Amended and Restated Credit Agreement, dated January 26, 2004, by and between North Pointe Holdings Corporation and Comerica Bank, as agent for the various financial institutions.
	10	.29•	Waiver Letter Dated February 28, 2005, to the Amended and Restated Credit Agreement, dated January 26, 2004, by and between North Pointe Holdings Corporation and Comerica Bank, as agent for the various financial institutions.
	10	.30*	Agreement, dated November 10, 2004, between the Florida Department of Financial Services, as Receiver for American Superior Insurance Company and North Pointe Casualty Insurance Company.
	10	.31•	Assumption of Mortgage Agreement for the Purchase Agreement regarding 28819 Franklin Road, Southfield, Michigan, 48034, dated August 18, 2005.
	10	.32•	Purchase Agreement, dated February 11, 2005, by and among North Pointe Financial Services, Inc., as Buyer, and S. James Clarkson and Petcoff Financial Services, L.L.C., as Sellers.
	10	.33*	Investment Advisory Agreement, dated June 16, 2004, between North Pointe Casualty Insurance Company and JPMorgan Investment Advisors Inc. (formerly Banc One Investment Advisors Corporation).
	10	.34*	Investment Management Agreement, dated June 10, 2005, between JPMorgan Investment Advisors Inc. and Home Pointe Insurance Company.
	10	.35 ∆+	Form of stock option award.
	10	.36 ∆+	Form of restricted stock option award.
	10	.37+	First Amendment to the Employment Agreement by and between North Pointe Holdings Corporation and James G. Petcoff, dated January 1, 2007.
	10	.38+	First Amendment to the Employment Agreement by and between North Pointe Holdings Corporation and B. Matthew Petcoff, dated January 1, 2007.
	10	.39 5	Amendment to the Consulting Agreement by and between North Pointe Insurance Company and LVM Company, dated April 6, 2006.
	10	.40 5	Managing General Agency Agreement by and between North Pointe Insurance Company and South Pointe Financial Services, Inc., dated July 1, 2006.
	10	.41 5	Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated September 1, 2006.
	10	.42 5	Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.43 5	Addendum Number 1 to Reinsurance Agreement by and between North Pointe Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.44 5	Reinsurance Agreement by and between North Pointe Casualty Insurance Company and Midfield Insurance Company dated January 1, 2007.
	10	.45**	$10,000,000 Revolving Credit Note, dated as of June 30, 2006, made by North Pointe Holdings Corporation in favor of Comerica Bank.

Exhibit No			Description
	10	.46**	$3,000,000 Swing Line Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation in favor of Comerica Bank.
	10	.47**	$7,500,000 Revolving Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation, in favor of Fifth Third Bank, with Comerica Bank as agent.
	10	.48**	$7,500,000 Revolving Credit Note, dated June 30, 2006, made by North Pointe Holdings Corporation, in favor of JP Morgan Chase Bank, N.A., with Comerica as agent.
	10	.49 n	Stock Purchase Agreement by and among Hinton G. Davis, HGD Investment LP, First Venture Holdings, L.L.C., Mary Teresa Davis Tanner, Hinton G. Davis III Grantor Trust, Susan Cheri Davis McMillan, Capital City Acquisition Corp., and North Pointe Holdings Corporation Relating to the Purchase and Sale of 100% of the Capital Stock of Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. Dated as of May 11, 2007.
	10	.50 n	First Amendment to the Stock Purchase Agreement by and among Hinton G. Davis, HGD Investment LP, First Venture Holdings, L.L.C., Mary Teresa Davis Tanner, Hinton G. Davis III Grantor Trust, Susan Cheri Davis McMillan, Capital City Acquisition Corp., and North Pointe Holdings Corporation Relating to the Purchase and Sale of 100% of the Capital Stock of Capital City Holding Company, Inc., Davis-Garvin Holdings, Inc., Capital Excess & Surplus Brokers, Inc., Southeastern Claims Services, Inc., Safeco Products, Inc., and Charter Premium Audits, Inc. Dated as of July 2, 2007.
	10	.51 u	Stock Purchase Agreement by and among Safe Harbour Holdings, L.L.C., American Capital Assurance Corp., North Pointe Holdings Corporation and North Pointe Financial Services, Inc., Relating to the Purchase and Sale of 100% of the Capital Stock of Home Pointe Insurance Company Dated as of October 22, 2007.
	10	.52 ¡+	Agreement regarding Employment, by and between North Pointe Holdings Corporation and Brian J. Roney dated November 2, 2007.
	10	.53	Amendment to the Consulting Agreement by and between North Pointe Insurance Company and LVM Company, dated September 7, 2007.
	10	.54¥	Agreement and Plan of Merger dated as of January 3, 2008 among North Pointe Holdings Corporation, Noble Acquisition Corporation and QBE Holdings, Inc.
	21	.1	Subsidiaries of North Pointe Holdings Corporation.
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	31	.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
	32	.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934.
	32	.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) under the Securities Exchange Act of 1934.

*	Previously filed with the Registration Statement on Form S-1 dated September 23, 2005.
•	Previously filed with the Form 10-K for the year ended December 31, 2005.
**	Previously filed with the Form 10-Q for the quarter ended June 30, 2006.
∆	Previously filed with the Form 10-Q for the quarter ended September 30, 2005.
5	Previously filed with Form 10-K for the year ended December 31, 2006
n	Previously filed with Form 10-Q for the quarter ended June 30, 2007.
u	Previously filed with Form 10-Q for the quarter ended September 30, 2007.
▼	Previously filed with Form 8-K filed on January 8, 2008.
¥	Previously filed with DEF14A Proxy Filings filed on January 9, 2008 and March 7, 2008.
¡	Previously filed with Form 8-K filed on January 16, 2008.
+	Compensatory plan or arrangement.

EX-10.18

Exhibit 10.18

SEPARATION AND CONSULTING AGREEMENT

     This SEPARATION AND CONSULTING AGREEMENT (this “Agreement”) dated as of January 3, 2008 (the “Effective Date”) is made by and among QBE Holdings, Inc., a Delaware corporation (“Parent”), North Pointe Holdings Corp., a Michigan corporation (the “Company”) and James G. Petcoff (the “Executive”).

W I T N E S S E T H

     WHEREAS, the Executive and North Pointe Holdings Corp. entered an employment agreement dated June 10, 2005, as amended as of January 1, 2007 (the “Employment Agreement”), pursuant to which Executive serves as President, Chief Executive Officer and Chairman of North Pointe Holdings Corp.; and

     WHEREAS, pursuant to an Agreement and Plan of Merger dated as of January 3, 2008 (the “Merger Agreement”) between Parent, Noble Acquisition Corporation, a Michigan corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), and the Company, Merger Sub shall merge with and into the Company (the “Merger”) at which time the Company shall become a wholly-owned subsidiary of Parent; and

     WHEREAS, in connection with the Merger, the Company and the Executive have agreed that Executive will resign his employment with the Company as of the Closing Date (as such term in defined in the Merger Agreement); and

     WHEREAS, subject to the terms and conditions contained herein, the Executive and the Company have mutually agreed to embody in this Agreement the terms and conditions applicable to the Executive’s termination of employment with the Company.

     NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and Executive hereby agree as follows:

     1.     Termination of Employment Agreement. The Employment Agreement between Executive and the Company shall be terminated and cancelled in its entirety as of the Closing Date, and this Agreement shall constitute the entire agreement between Executive and the Company relating to the Executive’s employment with the Company, termination thereof, and certain activities (as set forth herein) following such termination and shall expressly supersede in its entirety the Employment Agreement and any other agreement and understanding, whether written, oral, express or implied, between the Executive and the Company relating to the Executive’s employment with and termination from employment with the Company. For the avoidance of doubt, the Executive hereby specifically waives his right to any and all payments or benefits in connection with his termination of employment pursuant to Section 10 (relating to Post-Termination Payments) and Section 11 (relating to Change of Control) of the Employment Agreement.

     2.     Resignation. Effective on the Closing Date and subject to the consummation of the transactions contemplated in the Merger Agreement, the Executive shall resign as President,

Chief Executive Officer and Chairman of the Company and from any and all directorships, committee memberships or any other positions he holds with the Company or any of its subsidiaries.

     3.     Accrued Payments and Benefits.

     (a)     Accrued Base Salary. On the Closing Date, the Company shall pay to the Executive all accrued and unpaid base salary earned through the Closing Date.

     (b)     Bonus. On the Closing Date, the Company shall pay to the Executive a pro rata portion of Executive’s bonus for 2008, based upon the cash bonus paid or due to the Executive under the Company’s bonus plan applicable to the Executive for 2007.

     (c)     Accrued Vacation Pay. On the Closing Date, the Company shall pay to the Executive all accrued and unused vacation pay earned through the Closing Date.

     (d)     Benefits. Except as otherwise specifically provided in this Agreement, by law or pursuant to the express provisions of any Company employee benefit plan, the Executive’s participation in all employee benefit plans and executive compensation plans and practices of the Company shall terminate on the Closing Date and the Executive shall be entitled to receive any benefits or rights provided to a terminating executive in accordance with the terms of any such plan (excluding any severance payments pursuant to the terms of any Company severance plan).

     4.     Consulting Services.

     (a)     Services. Subject to the Executive’s execution, on the Closing Date, and non-revocation of the waiver and release attached hereto as Exhibit A, the Company shall engage, and the Executive shall serve the Company, in the capacity as a consultant providing consulting, advisory and related services (the “Consulting Services”) to the Company and its subsidiaries as requested by the Company. The term of the Executive’s engagement shall commence on the Closing Date and shall consist of four (4) six-month segments ending on the second anniversary of the Closing Date; provided, however, that either party may give written notice to the other, at least forty-five (45) days prior to the end of any such six-month segment, terminating the consulting engagement as of the last day of such segment (the “Consulting Term”). During the Consulting Term, the Executive shall perform such Consulting Services at such time or times as the Company may reasonably request subject to the Executive’s concurrence (not to be unreasonably withheld); provided, however, that in no event will Executive be required to perform Consulting Services for more than 40 hours in any calendar month during the Consulting Term.

     (b)     Fees. During the Consulting Term, the Executive shall be entitled to a consulting fee in an amount equal to $50,000 per month, payable in arrears on the last business day of each month. The Executive shall be reimbursed by the Company for the Executive’s reasonable and customary expenses incurred in connection with services rendered during the Consulting Term, subject to the submission of properly documented receipts, in accordance with the policies, programs, procedures and practices of the Company in effect at the time the expense was incurred, as the same may be changed from time to time.

     (c)     Death or Permanent Disability. In the event of Executive’s death or cessation of services as a result of his permanent disability during the Consulting Term, an additional amount equal to $300,000 shall become due and payable by the Company as of the date of Executive’s death or cessation of services as a result of his permanent disability. For purposes of this paragraph (c), “permanent disability” shall mean any disability resulting from a physical or mental illness pursuant to which Executive is, or would reasonably be expected to be, unable to perform the Consulting Services for a period of at least three (3) consecutive months (regardless of the duration of the remainder of the Consulting Term).

     (d)     Independent Contractor Status. No provision of this Section 4 shall imply any relationship of partnership, agency or employer and employee between the Company and the Executive during the Consulting Term. The Executive will serve as an independent contractor providing consulting services to the Company. The Executive shall not under any circumstances represent that he is an employee or agent of the Company or any of its subsidiaries. The Executive shall assume full responsibility for payment of all federal, state and local taxes or contributions imposed or required under unemployment insurance, social security and income tax laws, with respect to the Executive’s performance of Consulting Services, and the Executive agrees to file any certificates with the Company or other third parties that may at any time be required to demonstrate his status as an independent contractor. The Executive shall not, by reason of this Section 4, acquire any benefits, privileges or rights under any benefit plan operated by the Company or its subsidiaries for the benefit of their employees, including, without limitation, (i) any pension or profit-sharing plans or (ii) any plans providing medical, dental, disability or life insurance protection, except as may otherwise be required under applicable law, and except that the Company covenants and agrees to allow the Executive to participate, for the duration of the Consulting Term, in group benefit plans extended to its employees if and to the extent that the Executive is and remains eligible to participate in such plans on the date hereof and immediately following cessation of his employment by the Company.

     5.     Full Settlement. The Executive acknowledges that the amounts paid under Sections 3 and 4 shall constitute full settlement and satisfaction with respect to all obligations and liabilities of the Company and its affiliates, officers, directors, trustees, employees, shareholders, representatives and/or agents to the Executive with respect to his employment with the Company, including, without limitation, all claims for wages, salary, vacation pay, draws, incentive pay, bonuses, stock and stock options (other than stock and stock options owned by Executive on the date of this Agreement), commissions, severance pay and any and all other forms of compensation or benefits.

     6.     Return of Company Property. On the Closing Date, the Executive shall return to the Company all Company-owned property in his possession or under his control on such date, including without limitation, credit cards, computer hardware and software, other electronic equipment, records, data, notes, reports, correspondence, financial information, customer files and information and other documents or information (including any and all copies of such property) written or created by, for or on behalf of the Company, whether or not by or at the Company’s request.

     7.     Release and Waiver of Claims at the Closing Date. In consideration for the benefits and payments provided for in Sections 3 and 4 of this Agreement, the Executive hereby

agrees to execute a release and waiver of claims in the form attached hereto as Exhibit A, effective as of the Closing Date.

     8.     Confidentiality; Noncompetition; Nonsolicitation.

     (a)     Noncompetition. The Executive covenants and agrees that the Executive will not during the Consulting Term and for a period of two (2) years following the termination of the Consulting Term (the “Noncompetition Period”), without the prior written consent of the Company (such consent not to be unreasonably withheld), directly or indirectly, through any person, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise, engage or be engaged, or assist any other person, firm, corporation or enterprise in engaging or being engaged, in an insurance underwriting or agency business activity that is competitive with the business of the Company or its affiliates or subsidiaries, or in any other business being conducted by the Company or any of its subsidiaries on the date hereof or during the Consulting Term in any geographic area in which the Company or any of its affiliates or subsidiaries is conducting such business on the date hereof or during the Consulting Term. In consideration of the foregoing covenant and agreement by the Executive (and in addition to payments due to the Executive under other provisions of this Agreement), the Company covenants and agrees to pay the Executive $10,000 per month, payable monthly in arrears, beginning with the month which includes the Closing Date and ending upon the completion of the Noncompetition Period. No provision in this Section 8(a) shall prohibit the Executive from being (i) a stockholder in a mutual fund or a diversified investment company, (ii) an owner of not more than ten percent (10%) of the outstanding equity securities of any class of a corporation, partnership, limited liability company or other business enterprise, nor more than five percent (5%) owner of American Equable, Inc. so long as the Executive has no active participation as a director, officer, employee or otherwise in the business of such corporation, partnership, limited liability company, other business enterprise or American Equable, Inc. (iii) a director of any business enterprise so long as the Executive is not an officer or employee of such enterprise and such enterprise does not compete with the Company, or (iv) an owner of any equity interest, a director, an officer or an employee (or some or all of them) of Lease Corporation of America.

     (b)     Nonsolicitation. The Executive further covenants and agrees that during the Noncompetition Period, the Executive shall not (i) in any manner, directly or indirectly, induce or attempt to induce any employee or consultant of the Company or any of its affiliates or subsidiaries to terminate or abandon his or her employment or services for any purpose whatsoever, or (ii) solicit any policyholder or agent of the Company or any of its subsidiaries or affiliates to engage in an insurance underwriting or agency business activity that is competitive with the business of the Company or its affiliates or subsidiaries on the date hereof or during the Consulting Term in any geographic area in which the Company or any of its affiliates or subsidiaries is then conducting such business.

     (c)     Non-Disparagement. Except to the extent required by law, the Executive agrees not to make or cause to be made, any oral or written statement, or take any other action, which disparages, criticizes, damages the reputation of, or is hostile to, the Company or its administration, employees, management, officers, shareholders, agents and/or directors.

     (d)     Confidentiality. The Executive agrees that the Executive shall not at any time, without the Company’s prior written consent, make use of or disclose, directly or indirectly, any (i) trade secret or other confidential or secret information of the Company or of any of its affiliates or subsidiaries or (ii) other technical, business, marketing, proprietary, financial, policyholder, pricing or personnel information of the Company or of any of its affiliates or subsidiaries not intended to be available to the public generally or to the competitors of the Company or to the competitors of any of its affiliates or subsidiaries (“Confidential Information”), except to the extent that such Confidential Information (a) becomes a matter of public record or is published in a newspaper, magazine or other periodical or on electronic or other media available to the general public, other than as a result of any act or omission of the Executive, (b) is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency, provided that the Executive gives prompt notice of such requirement to the Company to enable the Company to seek an appropriate protective order, or (c) is required to be used or disclosed by the Executive to perform properly the Executive’s duties under this Agreement.

     (d)     Remedies. The Executive agrees that if Executive breaches this Section 8, the Company will be irreparably harmed and will have no adequate remedy at law and will be entitled to an injunction as a matter of right from any court of competent jurisdiction restraining further breach of any of this Section 8 without any obligation to post a bond or other security.

     9.     Taxes. The payments due to Executive under this Agreement (other than pursuant to Section 4 hereof) shall be subject to reduction to satisfy all applicable Federal, state and local employment and withholding tax obligations to the extent required by law.

     10.     Non-Admission. The Executive expressly acknowledges that this Agreement does not constitute an admission by the Company of any violation of any employment law, regulation, ordinance, or administrative procedure, or any other federal, state, or local law, common law, regulation or ordinance relating to the Executive’s employment or termination of employment.

     11.     Forfeiture of Payments. The Executive acknowledges that if the Executive breaches, in any material respect, the terms or conditions contained in the Agreement, the Company will no longer be required to make or continue any payments or benefits payments described herein, to the extent permitted by applicable law.

     12.     Cooperation with Litigation. Except for any litigation as to which the Executive is an adverse party relative to the Company or any of its subsidiaries, the Executive shall cooperate fully with the Company in connection with any existing or future litigation and investigations against the Company or any of its subsidiaries, whether administrative, civil or criminal in nature, and to the extent that the Company deems his cooperation necessary. The Company will, to the extent practicable, provide the Executive with reasonable notice of the need for such cooperation and will make a good faith effort to accommodate the Executive’s reasonable scheduling needs in coordinating such cooperation.

     13.     Notice. Other than a notice of revocation of the waiver and release of claims in accordance with Exhibit A attached hereto, any notices to be given under this Agreement by a

party to the other may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the following addresses, but each party may change his address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of actual receipt; notices mailed by certified or registered mail shall be deemed communicated as of actual receipt; notices mailed first class shall be deemed communicated as of 5 days after mailing:

To Parent:

QBE Holdings, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10015
Attention: Peter Maloney
Telephone: 212-894-7599
Fax: 212-422-1313

with a copy to (which shall not constitute notice):

Edwards Angell Palmer & Dodge LLP
90 State House Square
Hartford, CT 06103
Attention: Alan J. Levin, Esquire
Telephone: 860-541-7747
Fax: 860-527-4198

To the Company:

North Pointe Holdings Corp.
28819 Franklin Road
Southfield, MI 48034
Attention: Rochelle Kaplan
Telephone: (248) 358-1171
Fax: (248) 359-9937

To the Executive:

James G. Petcoff
968 Arlington Street
Birmingham, MI 48009

with a copy (which shall not constitute notice) to:

Foley & Lardner LLP

500 Woodward Avenue
Suite 2600
Detroit, MI 48226
Attention: Patrick Daugherty, Esq.

     14.     Entire Agreement. This Agreement, together with the agreements referenced herein and Exhibit A attached hereto, represents the entire agreement of the parties with respect to the termination of Executive’s employment and shall supersede the Employment Agreement in all respects effective as of the Effective Date.

     15.     Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan without regard to the principles of conflicts of law thereof.

     16.     Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

     17.     Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement.

     18.     Effectiveness. This Agreement shall become effective upon the Effective Date; provided, however, that this Agreement shall be of no further force or effect upon any termination of the Merger, in which event the Employment Agreement will be reinstated in all respects as though it had continued in full force and effect at all times since the Effective Date.

     19.     Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the Company and the Executive and their respective heirs, legal representatives, successors and permitted assigns.

     20.     Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party, in whole or in part (whether by operation of law or otherwise), without the prior written consent of the other party, and any attempt to make any such assignment without such consent shall be null and void ab initio, except that the Executive may assign, in his sole discretion, any or all of his rights, interests and obligations under this Agreement to any entity controlled by the Executive (but no such assignment shall relieve the Executive of any of his obligations hereunder).

[SIGNATURE PAGE TO FOLLOW]

     IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.

QBE HOLDINGS, INC.
By	/s/ Timothy Kenny
	Title
NORTH POINTE HOLDINGS CORP.
By:	/s/ B. Matthew Petcoff
	Title:
JAMES G. PETCOFF
By	/s/ James G. Petcoff

Exhibit A

GENERAL RELEASE

I, James C. Petcoff, in consideration of and subject to the performance by [     ]., a Michigan corporation (the “Company”), of its obligations under the Separation and Consulting Agreement by and between the Company and myself dated as of [     ] (the “Agreement”), do hereby release and forever discharge as of the date hereof, the Company and any of its respective present and former subsidiaries and affiliates and all present and former managers, directors, officers, agents, representatives, employees, successors and assigns of the Company, and its respective subsidiaries, affiliates and direct or indirect equityholders of the Company (collectively, the “Released Parties”) to the extent provided below.

1.

I understand that any payments or benefits paid or granted to me under Section 4 of the Agreement represent, in part, consideration for signing this General Release and are not salary, wages or benefits to which I was already entitled. I understand and agree that I will not receive the payments and benefits specified in Section 4 of the Agreement unless I execute this General Release and do not revoke this General Release within the time period permitted hereafter or breach this General Release. I also acknowledge and represent that I have received all payments and benefits that I am entitled to receive (as of the date hereof) by virtue of any employment by the Company.

2.

Except as provided in paragraph 4 below, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date this General Release becomes effective and enforceable) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment with, or my separation or termination from, the Company, including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Rehabilitation Act of 1973; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress or defamation; or

	any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).
3.	I agree that this General Release does not limit my right to file, cooperate with or participate in an age discrimination proceeding before a state or federal fair employment practices agency provided I do not recover any monetary benefits in such proceeding. I acknowledge and agree that my separation from employment with the Company in compliance with the terms of the Agreement shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).
4.	I represent that I have not filed any claim against the Company in any forum up to the date of this General Release.
5.	I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.
6.	I agree that this General Release is confidential and agree not to disclose any information regarding the terms of this General Release, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.
7.	Whenever possible, each provision of this General Release shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
	BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE AS FOLLOWS:
8.	I HAVE READ THIS GENERAL RELEASE CAREFULLY;
9.	I UNDERSTAND ALL OF TERMS OF THIS GENERAL RELEASE AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;
10.	I VOLUNTARILY CONSENT TO EVERYTHING IN THIS GENERAL RELEASE;

11.	I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING THIS GENERAL RELEASE AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;
12.	I HAVE HAD AT LEAST 21 DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON [___] TO CONSIDER IT;
13.	I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT AND THAT THIS GENERAL RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
14.	I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO HERETO; AND
15.	I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

DATE:
	[Name]

EX-10.53

Exhibit 10.53

AMENDMENT TO CONSULTING AGREEMENT

     This Amendment is dated September 1, 2007, by and between LVM Company (“LVM”) and North Pointe Insurance Company (“NPIC”).

     The parties signed a Consulting Agreement on March 5, 2003, and an Amendment on April 6, 2006 which governs the terms on which LVM provides certain services for NPIC relating to claims adjusting philosophies and procedures.

     The parties amend the original Agreement as follows:

1.	Term of Agreement. This Agreement will be effective for an initial term of one (1) year from September 1, 2007 through March 1, 2009. Thereafter will automatically renew for a successive term of one (1) year each unless NPIC gives written notice to LVM of its election not to renew for an additional term; notice shall be given to LVM at least ninety (90) days prior to the expiration date of any term.
2.	Compensation. As full, final and exclusive compensation for all LVM’s services under this Agreement, NPIC agrees to pay LVM a fee equal to the sum of $10,000 per month for the term of the Agreement.
3.	Unless it is specifically amended by this Amendment, all provisions to the Agreement remain fully effective.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 7th day of September, 2007.

NORTH POINTE INSURANCE COMPANY
By:	/s/ James G. Petcoff
Its:

LVM COMPANY
By:	/s/ Lawrence V. MacLean
Dated:

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, James G. Petcoff, certify that:

1. I have reviewed this annual report on Form 10-K of North Pointe Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

1

EXHIBIT 31.1

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2008

/s/ James G. Petcoff, Chief  

James G. Petcoff, Chief 

Executive Officer 

2

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Brian J. Roney, certify that:

1. I have reviewed this annual report on Form 10-K of North Pointe Holdings Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

1

EXHIBIT 31.2

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2008

/s/ Brian J. Roney  

Brian J. Roney, Chief 

Financial Officer 

2

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of North Pointe Holdings (the “Company”) on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, James G. Petcoff, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2008	/s/ James G. Petcoff
	James G. Petcoff, Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of North Pointe Holdings (the “Company”) on Form 10-K for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Periodic Report”), I, Brian J. Roney, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.	the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2008	/s/ Brian J. Roney
	Brian J. Roney, Chief Financial Officer