10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

¨ 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 000-51767

AmCOMP Incorporated

(Exact name of registrant as specified in its charter)

Delaware	65-0636842
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

701 U.S. Highway One

North Palm Beach, Florida 33408

Telephone: (561) 840-7171

(Address of registrant’s principal executive offices and registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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

Title of each class

Common Stock, $0.01 par value per share

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 x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No x

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 the past 90 days.

Yes x 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. 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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2007 was approximately $128,449,000.  In determining this figure, the Registrant has assumed that all of the registrant’s directors and executive officers are affiliates.  This assumption should not be deemed a determination or an admission by the registrant that such individuals are, in fact, affiliates of the registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 28, 2008
Common Stock, $0.01 par value per share	15,290,181 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the 2008 Annual Meeting of Stockholders	Part III

AMCOMP INCORPORATED

INDEX

PART I
Item 1. Business	1
Item 1A. Risk Factors	25
Item 1B. Unresolved Staff Comments	40
Item 2. Properties	40
Item 3. Legal Proceedings	40
Item 4. Submission of Matters to a Vote of Security Holders	40
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	41
Item 6. Selected Financial Data	43
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 7A. Quantitative and Qualitative Disclosure about Market Risk	68
Item 8. Financial Statements and Supplementary Data	71
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	101
Item 9A. Controls and Procedures	101
Item 9B. Other Information	101
PART III
Item 10. Directors and Executive Officers of the Registrant	102
Item 11. Executive Compensation	102
Item 12. Security Ownership of Certain Beneficial Owners and Management	102
Item 13. Certain Relationships and Related Transactions	102
Item 14. Principal Accounting Fees and Services	102
PART IV
Item 15. Exhibits and Financial Statement Schedules	103
SIGNATURES	115

ii

PART I

Item 1. Business

Overview

We are a property and casualty insurer incorporated in the state of Delaware in 1995, specializing in workers’ compensation insurance products that include a strong emphasis on value-added services to our policyholders.  We offer insurance coverage for the statutorily prescribed wage replacement and medical care benefits that employers are required to provide to their employees who are injured in the course of their employment.  In this Annual Report on Form 10-K, we use the terms “AmCOMP,” “we,” “our” and “us” to refer to AmCOMP Incorporated and its subsidiaries.

We offer these products and services by emphasizing our individual risk underwriting approach, and the loss prevention and claims management services we provide.  We target employers that are safety conscious, demonstrate a strong commitment to loss prevention and have a favorable attitude toward the health and safety of their employees.  We underwrite these risks on an individual basis, as opposed to following an occupational class-based underwriting approach, and consider many factors such as type of business, nature of operations, risk exposures and other employer-specific conditions.  We try to avoid risks that have either a significant potential for severe losses, such as steel erectors, or a reduced opportunity to obtain an adequate rate, such as clerical workers.  In underwriting and pricing our policies, our goal is to maintain adequate premium levels commensurate with the risks we underwrite to earn consistent underwriting profits.

Our loss prevention specialists provide various services for the classes of business that we underwrite.  These services include identifying and eliminating unsafe working conditions, accident and illness prevention, safety awareness training and sound employee hiring practices.  Our claims management services include return-to-work programs, case management by teams of registered nurses and experienced claims adjusters and management of medical provider services and billings.

These consultative services result in added value to our insureds and their employees.  In many cases, our services provide employers the opportunity to reduce their loss experience and their long-term net workers’ compensation costs.  Many of our competitors have greater financial resources or offer other lines of business and can offer their workers’ compensation insurance at lower prices.  We are able to compete primarily due to service and other value-based considerations, rather than solely on premium cost.

Our proactive claims management strategy includes promoting prompt reporting of claims, obtaining appropriate medical care for injured workers and mandating early return to work programs for our policyholders.  We believe this strategy leads to rapid claims closure and lower overall claims costs.  We retain authority over underwriting, claims processing, safety engineering and policy auditing and do not delegate these responsibilities to third parties.

We seek to establish long-standing relationships with our policyholders and agents.  Our policyholders are primarily small to mid-sized businesses, those with annual premiums between $10,000 and $100,000 per year, and include selected classes of contractors, manufacturers and “main street” businesses such as retail stores and restaurants.  Excluding the policies assumed from our participation in mandatory pooling arrangements implemented by certain states in which we operate, we had the following numbers of policyholders with an average premium per policy as of the dates set forth in the following table.

	December 31,
	2007		2006		2005		2004		2003
Policy Count		9,502		9,572		9,790		9,599		8,691
Average Premium Size	$	23,114	$	25,571	$	25,115	$	25,455	$	25,371

Our management embarked on a growth and diversification strategy in 1999.  Until that time, we wrote business only in Florida.  After the successful execution of this strategy, we currently focus on 17 states with Florida representing 28.6% of our 2007 direct premiums written.  In all of the states in which we operate, a significant portion of total workers’ compensation insurance premiums is written by numerous companies that individually have a small market share.

1

Merger Agreement

On January 10, 2008, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Employers Holdings, Inc., a Nevada corporation ("Employers"), and Sapphire Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Employers ("Merger Sub"), providing for the acquisition of our company by Employers (NYSE: EIG).  Pursuant to the Merger Agreement, each issued and outstanding share of our common stock, other than dissenting shares or shares that we own as treasury stock, or shares owned by Employers or Merger Sub, will be converted into the right to receive $12.50 per share in cash. As part of the Merger Agreement, Merger Sub will merge with and into us with our company being the surviving corporation in the merger. Our Board of Directors and Employers’ Board of Directors each approved the entry into the Merger Agreement.  As a result of the merger, we will cease to be a publicly traded company and will become a wholly-owned subsidiary of Employers, and thus our stockholders will cease to have any ownership interest in us and will not participate in any of our future earnings and growth or losses.

            The Merger Agreement and related transactions are subject to the approval of our stockholders, the receipt of required regulatory approvals, including from the Florida Office of Insurance Regulation, and certain other customary closing conditions.  The merger and related transactions are expected to be completed by the end of the second quarter of 2008.

Employers may terminate the Merger Agreement under certain circumstances, including if our Board of Directors changes or withdraws its recommendation that our stockholders adopt the Merger Agreement or under other circumstances involving a competing offer to acquire us. In connection with such termination, we may be required to pay a fee of $8 million to Employers. We may terminate the Merger Agreement as a result of Employers’ material breach of certain of its representations and warranties, or any of its covenants or agreements under the Merger Agreement. In connection with Employers’ breach of any of its covenants or agreements or of its representation and warranty that it has sufficient funds to complete the transaction, Employers may be required to pay a termination fee of $8 million to us.

If the merger is not consummated for any reason (including failure to receive the requisite regulatory or stockholder approvals), our stockholders will not receive any payment for their shares. We would remain an independent public company, and we would expect to be operated by our management in a manner similar to that in which we are being operated today.

In connection with the proposed transaction, we filed a preliminary proxy statement with the Securities and Exchange Commission (the “SEC”) on February 22, 2008.  INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.  Investors and security holders may obtain a free copy of the definitive proxy statement (when available) and other documents filed by us at the SEC’s web site at www.sec.gov.  The proxy statement and such other documents may also be obtained without cost from the Company by directing such request to us, Attention: George E. Harris, Secretary, AmCOMP Incorporated, 701 U.S. Highway One, North Palm Beach, Florida 33408, Telephone: (561) 840-7171.

The Company and our directors, executive officers and other members of our management and employees may be deemed to be participants in the solicitation of proxies from our stockholders in connection with the proposed transaction.  Information concerning the interests of the Company’s participants in the solicitation is set forth in our proxy statements and Annual Reports on Form 10-K, previously filed with the SEC, and in the definitive proxy statement relating to the transaction when it becomes available.

On March 4, 2008, a purported class-action complaint was filed in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida, on behalf of Broadbased Equities, an alleged stockholder of ours, and all others similarly situated. The complaint, which names as defendants AmCOMP, our directors Fred R. Lowe, Debra Cerre-Ruedisili, Sam A. Stephens, Paul B. Queally, Donald C. Stewart and Spencer L. Cullen, Jr., and Employers, asserts claims related to our proposed transaction with Employers for breaches of fiduciary duty and, in the case of Employers, aiding and abetting such breaches, in connection with the directors’ determination to sell the company.  The complaint seeks a declaratory judgment that the defendants have breached their fiduciary duties to plaintiff and the purported class members and/or, in the case of Employers, aided and abetted such breaches, compensatory and/or rescissory damages, as well as pre and post-trial interest, as allowed by law, and the costs and disbursements of the action, including reasonable attorneys' and experts' fees and other costs. We believe that these claims are without merit and intend to defend this action vigorously and, therefore, no provision for this litigation has been made in the current financial statements.

Strategy

In the short term, we will continue to focus on customers – our agents and policyholders – as well as our day-to-day operations until such time as the merger with Employers closes.

We plan to pursue profitable growth and favorable returns on equity through the following strategies:

· Leverage Existing Infrastructure.  Since 1999, we have successfully expanded our operations across 17 targeted states.  We have offices in eight states, each of which we believe has been staffed to accommodate anticipated premium growth.  We have grown our workforce 96.7% since December 31, 1999 from 244 employees to 480 at December 31, 2007.  We believe that these initiatives have given us a fully-built, well-developed scalable infrastructure that will allow us to continue to lower our expense ratio while attempting to grow our premium.

2

· Expand in our Existing Markets.  Our market share in each of our states as measured by 2006 direct premiums written does not exceed 5.0%.  Competition in our target markets varies by state and employer size.  In all of the states in which we operate, a significant portion of total workers’ compensation insurance premiums is written by numerous companies that individually have a small market share.  We believe that the strength of our risk selection, loss prevention, claims management, and policyholder service positions us to profitably increase our market share in our existing markets.

· Prudent Geographic Expansion.  While we are licensed in 25 states and the District of Columbia, we actively market our insurance in the 17 states that we believe provide the greatest opportunity for near-term profitable growth.  We are evaluating a number of states for long term entry potential.  Possible expansion states in the near term include Arkansas, Iowa and Oklahoma, subject to compliance with applicable licensing requirements.  We intend to continue to scrutinize carefully the potential for achieving underwriting profits and adequate returns on capital before expanding our business in existing or new states.

· Exclusive Focus on Workers’ Compensation Insurance.  Our operations are exclusively focused on providing workers’ compensation insurance and related services to policyholders.  We believe this focus enables us to better understand an employer’s needs and potential risks in this industry relative to competitors who offer a broader range of insurance products.  This focus also allows us to manage all aspects of our business to profitably serve this market.

· Focus on Underwriting Profitability.  We intend to maintain our focus on underwriting discipline and profitability throughout market cycles.  Our strategy is to focus on underwriting workers’ compensation insurance and to maintain adequate premium rate levels commensurate with the risks we underwrite.  We will also continue to strive for improved risk selection and pricing, as well as reduced loss frequency and severity of claims through comprehensive workplace safety reviews, rapid closing of claims through personal, direct contact with our policyholders and their employees, and effective medical cost containment measures.

Workers’ Compensation System

Workers’ compensation is a statutory system under which an employer is required to pay for its employees’ costs of medical care and other statutorily prescribed benefits for work-related injuries or illnesses.  Most employers comply with this requirement by purchasing workers’ compensation insurance.  The principal concept underlying workers’ compensation laws is that employees injured in the course of their employment have only the legal remedies available under those laws and do not have any other claims against their employers.  Generally, workers are covered for injuries that occur in the course and within the scope of their employment.  The employers’ obligation to compensate injured workers does not depend on any negligence or wrongdoing of the employer and exists even for injuries that result from the negligence or wrongdoing of others, including the injured employee.  The benefits payable and the duration of such benefits are set by statute and vary by state and with the nature and severity of the injury or disease and the wages, occupation and age of the employee.

Workers’ compensation insurance policies obligate the carrier to pay all benefits that the insured employer may become obligated to pay under applicable workers’ compensation laws.  Each state has a regulatory and adjudicatory system that:

· quantifies the level of wage replacement to be paid;

· determines the level of medical care required to be provided and the cost of permanent impairment; and

· specifies the options in selecting healthcare providers available to the injured employee or the employer.

3

State laws generally require two types of benefits for injured employees: medical benefits and indemnity payments.  Medical benefits include expenses related to diagnosis and treatment of the injury and any required rehabilitation.  Indemnity payments consist of temporary wage replacement, permanent disability payments and death benefits to surviving family members.  To fulfill this mandated financial obligation, virtually all employers are required to purchase workers’ compensation insurance or, if permitted by their state, to self-insure.  Employers may purchase workers’ compensation insurance from a private insurance carrier, a state-sanctioned assigned risk pool or a self-insurance fund (an entity that allows employers to obtain workers’ compensation coverage on a pooled basis, typically subjecting each employer to joint and several liability for the entire fund) or may self-insure, thereby retaining all risk.  Texas is the only state in which we operate that allows the policyholder to “opt out” of the workers’ compensation no-fault system.  When that option is elected, the policyholder either self-insures its risk or purchases disability type insurance for its employees.

Workers’ compensation premiums, which are paid by employers, are determined by the payroll generated by employers, the specific type of work that each employee performs and the employer’s historical loss experience.  Class codes are established by rating organizations, which categorize the types of tasks performed by employees.  Each class code is then assigned a specific dollar rate depending on the propensity of an individual performing that job function to be injured at work.  The more likely it is that an individual will be injured at work, based upon the hazards associated with performing that work, the higher the rate and thus the higher the premiums will be.

Description of Our Business

The following table sets forth our direct premiums written by state and as a percentage of total direct premiums written for each of the last three fiscal years:

	Year Ended December 31,
	2007				2006				2005
	(Dollars in thousands)
Florida	$	63,160	28.6	%	$	100,635	37.7	%	$	108,995	40.3	%
Wisconsin		31,394	14.2			34,459	12.9			31,572	11.7
Texas		27,531	12.5			30,241	11.3			25,234	9.3
Indiana		18,864	8.6			26,193	9.8			32,954	12.2
Tennessee		15,097	6.8			15,912	6.0			19,203	7.1
Georgia		13,532	6.1			13,072	4.9			12,911	4.8
Illinois(1)		10,091	4.6			7,932	3.0			4,665	1.7
Kentucky		9,740	4.4			10,589	4.0			11,869	4.4
Virginia		9,586	4.3			9,301	3.5			7,847	2.9
North Carolina(2)		9,282	4.2			10,147	3.8			7,693	2.8
South Carolina		7,734	3.6			7,629	2.9			6,808	2.5
Mississippi		1,905	0.9			295	0.1			190	0.1
Other States		2,649	1.2			422	0.1			390	0.2
Total	$	220,565	100.0	%	$	266,827	100.0	%	$	270,331	100.0	%

(1) We were subject to a $9.0 million cap on written premiums in 2005.  Effective January 1, 2006, the cap was removed.

(2) We were subject to a $12.0 million cap on written premiums in early 2005.  Effective July 6, 2005, the cap was removed.

We have created a decentralized operating structure that we believe fully supports our philosophy of local people doing business with local people.  When entering a new state, we first seek out qualified candidates who have developed relationships with independent insurance agents and businesses in the geographic area into which we would like to expand.  Local management establishes its own underwriting targets and operating budgets, which are ultimately approved by our executive management.  This bottom-up framework is important to our success, as we believe that local employees best understand the needs and concerns of the insurance agents and policyholders in the communities in which they work.

4

We have offices in 8 of the 17 targeted states in which we focus our operations, from which our field underwriters, loss prevention professionals or claims personnel provide services to our agents and policyholders.  For administrative purposes, we have grouped these states into six geographic regions.  We perform all of our corporate accounting, regulatory compliance, human resources, executive management and information management technology functions from our principal executive offices.

To ensure consistency of our underwriting, loss prevention and claims management philosophies throughout our company, we audit our underwriting, loss prevention, and claims’ processes across regions.  Underwriting, loss prevention and claims management personnel from different states review a particular state’s practices, files and philosophy.

Insurance Products and Pricing

Our products and rating plans encompass a variety of options designed to fit the needs of our policyholders and employer groups.  Our basic product is a guaranteed cost policy, under which the premium for a policyholder is set in advance and varies based only upon changes in the policyholder’s employee class codes and payroll.  In return for payment of premium, we agree to assume statutorily imposed obligations of the policyholder to provide workers’ compensation benefits to its employees.

Generally, premiums for workers’ compensation insurance policies are a function of:

· the amount of the insured employer’s payroll;

· the applicable premium rate, which varies with the nature of the employees’ duties and the business of the employer; and

· factors reflecting the insured employer’s historical loss experience.

We write business in administered pricing and “loss cost” states.  In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically.  Rate competition generally is not permitted in these states and, consequently, policy dividend programs, which reflect an insured’s risk profile, are an important competitive factor.  Florida and Wisconsin are administered pricing states, while the other states in which we operate are loss cost states.  In loss cost states, we have more flexibility to offer premium rates that reflect the risk we are taking based on each employer’s profile.

In Florida and Wisconsin, and to a much more limited extent in Georgia, Texas and Virginia, we offer dividend programs to eligible policyholders under which a portion of the premium paid by a policyholder may be returned in the form of a dividend.  Eligibility for these programs varies based upon the nature of the policyholder’s operations, value of premium generated, loss experience and existing controls intended to minimize workers’ compensation claims and costs.  We have four basic types of dividend plans:

· a “flat dividend,” which provides for a dividend payment as a specified percentage of the policy premium, which we offer only in Wisconsin;

· a “sliding dividend,” which provides for the dividend payment to be eliminated or increased depending on the loss ratio of the policy;

· a combination flat and sliding dividend, which we offer only in Wisconsin; and

· a “group retention program,” which we offer only in Florida, provides for a dividend payment based upon the loss ratio of the policy as well as a group of policies in a defined group dividend plan.

Payment of the policy dividends specified in the dividend plan cannot be guaranteed and is at the discretion of the board of directors of the applicable insurance subsidiary and may be based upon:

· the individual policyholder’s loss ratio;

5

· the insurance subsidiary’s overall loss ratio; and

· the terms of the policyholder’s dividend plan agreement.

Generally, we pay dividends between four and 24 months after the applicable policy expires.  Dividend policies represented 27.5% of our direct premiums written in force in 2007 and represented 25.7% and 24.9% in 2006 and 2005, respectively.  They represented 46.8%, 37.8%, and 36.8% of direct premiums written in Florida, and 90.7%, 84.1%, and 86.4% of direct premiums written in Wisconsin, in those periods, respectively.

The Florida Office of Insurance Regulation (the “Florida OIR”) allows insurers to charge a rate that exceeds the state-established rate when deemed necessary through its Consent to Rate program.  Under this program, an insurer determines the additional premium, which, if accepted by the policyholder, is applied directly to the filed, published rate.

In loss cost states, we determine insurance rates through a two-step process.  First, the state approves a set of loss costs that provide for expected payments, which are prepared by an insurance rating bureau.  An insurer then selects a factor, known as a loss cost multiplier, to apply to loss costs to determine its insurance rates.  In these states, regulators permit pricing flexibility primarily through (1) the selection of the loss cost multiplier and (2) schedule rating modifications that allow an insurer to adjust premiums upwards or downwards for specific risk characteristics of the policyholder such as:

· type of work conducted at the premises or work environment;

· on-site medical facilities;

· level of employee safety;

· use of safety equipment; and

· policyholder management practices.

In loss cost states, we use both variables to calculate a policy premium that we believe will cover the claim payments, losses and loss adjustment expenses (“LAE”), and company overhead and result in a reasonable profit.

At December 31, 2007, we marketed and sold our insurance products through approximately 3,000 independent insurance agents operating in approximately 900 independent insurance agencies.  During 2007, 241 agencies produced at least $250,000 of our gross premiums written.  We seek to establish and maintain long-term relationships with the principals, producers and customer service representatives of independent agencies that will actively market our products and services.  We do this by emphasizing superior service and offering financial incentives including commissions and bonuses, including contingent bonuses based on net loss ratios and premiums earned.  No single agency representing us accounted for 10% or more of gross premiums written in 2007, 2006 or 2005.

Underwriting

We do not use a class underwriting approach that targets specific classes of business or industries in which the acceptability of a risk is determined by the entire class or industry.  Our underwriting strategy is to identify and target individual risks based on the individual characteristics of a prospective insured, although there are certain exposures that are either excluded or restricted which may result in account declination.

6

Our field underwriters regularly visit agents and participate in presentations to insureds.  Our field underwriters’ extensive personal interaction with independent agents and policyholders has led to an enhanced understanding of the businesses we underwrite and the needs of prospective insureds.  This allows us to apply subjective criteria when considering prospective insureds.  Our field underwriters have the authority to underwrite risk while in the field.  The underwriting authority of a field underwriter is subject to guidelines based on the specific experience of the field underwriter and the nature of the risk.  The guidelines set forth the underwriting authority for each field underwriter based on his experience and demonstrated knowledge of the product and market.  Risks outside a field underwriter’s predetermined level of authority are referred to underwriting management for underwriting approval.  In assessing a risk and our ability to service the policyholder, the field underwriter and underwriting management will become familiar with the individual employer’s business and consider many factors.

In addition, the underwriter also evaluates losses in the employer’s specific industry, geographic area and other non-employer specific conditions.  These and other factors are documented on our risk analysis worksheet and used to formulate projected loss experience for each individual account.  Our risk analysis worksheet was created by our internal and independent actuaries to assist underwriters with their decision making process.  The worksheet provides an estimate of the losses that will occur for each policy based on all available loss runs and an employer’s payroll history.  In addition, the worksheet contains the underwriter’s documentation regarding his expectation of losses (which may be different than the worksheet estimate), the type of insured, the risks associated with the insured and the rationale behind his decision whether to quote the account.  Our policy requires a risk analysis worksheet for every account we underwrite.  Our reinsurers also review the worksheets during their underwriting reviews, which we believe is a valuable tool for them as it is evidence that we actively and thoroughly review each account before we underwrite it.  Experience modification factors are applied to a policyholder’s rate either to increase the cost due to a history of prior losses or to reduce the cost of the policy due to favorable prior claims history.  To ensure that we truly understand a prospective insured’s business, any submission involving a state other than a field underwriter’s own state must be referred to that state’s underwriting management for underwriting approval.  This allows us to make certain that state specific issues, market conditions, regulatory requirements and pricing requirements are monitored and applied by underwriters with expertise in a given state.

Our underwriting strategy focuses on developing a relationship among the insured, the agent and us to promote account safety, long-term loyalty and continued profitability.  Our loss prevention professionals visit many policyholders to ascertain the policyholder’s willingness to comply with our underwriting and loss prevention philosophy.  This philosophy includes adhering to early return to work programs and implementing recommended safety practices.  To the extent we are permitted by law, we will cancel the policy of a policyholder that is not willing to comply with our philosophy.  If we cannot cancel the policy, we will not renew it upon its expiration.

We review our existing policies prior to renewal and when circumstances otherwise warrant.  Policies with net loss ratios in excess of 40% are reviewed by our underwriting review team comprising representatives from all concerned departments.  Each state has its own underwriting review team, which meets monthly.  The team evaluates all aspects of a particular policyholder’s operations, including financial stability, management control and claims history.  Recommendations as to risk improvements or nonrenewal decisions are made by the team and conveyed to the agent and policyholder through the field underwriter and loss prevention professional assigned to the policyholder.

We have no industry focus in targeting accounts.  Our rates vary in accordance with the risk of injury and potential claim size in each of the industries we underwrite.  The following table sets forth the percentage of our written premium by industry classification:

	Year Ended December 31,
NCCI Industry Group		2007	2006	2005	2004	2003

Contracting	35.7	%	40.2	%	39.8	%	39.1	%	39.0	%
Goods and Services	31.7		29.2		29.0		27.7		28.1
Manufacturing	18.1		17.4		17.4		18.5		16.8
Office and Clerical	6.4		6.0		5.8		5.9		5.9
Miscellaneous	8.1		7.2		8.0		8.8		10.2
Total	100	%	100	%	100	%	100	%	100	%

7

The following table sets forth representative businesses for each of the industry groups listed above:

Industry Classification	Representative Business
Contracting	artisan contractors (e.g., plumbers, electricians, painters and carpenters)
Goods and Services	retail stores restaurants
Manufacturing	component manufacturers for larger products such as gear, pump, automotive part and computer component manufacturers
Office and Clerical	clerical office employees salespersons collectors
Miscellaneous	drivers park employees

Loss Prevention

Our loss prevention professionals serve as the cornerstone of our loss control strategy and we believe their consultative services are important to our policyholders.  The purpose of our loss prevention group is to aid policyholders in preventing losses before they occur and in containing costs once claims occur.  The group also assists our underwriting personnel in evaluating potential and current policyholders.  We train employers in the details of workers’ compensation practices, safety and health techniques to reduce frequency and severity of injuries.

Loss prevention services to our policyholders include education about:

· employee hiring and screening;

· new employee orientation for safety;

· hazard identification, elimination or control;

· development and implementation of drug- and alcohol-free workplaces;

· implementation of return to work programs for recovering employees;

· claims management; and

· care management.

Loss prevention services to our underwriters include:

· evaluation of risk and continued insurability of existing policyholders; and

· evaluation of risk and initial insurability of prospective policyholders.

Loss prevention services to our claims personnel include:

· assistance with return-to-work issues, including identification of light duty jobs;

· accident investigation; and

· job analysis.

Our loss prevention professionals conduct surveys of prospective policyholders’ operations to determine insurability of risks.

8

Claims Management and Managed Care

We believe that a claims management strategy emphasizing the efficient and effective handling of reported claims is equally integral to our ability to reduce policyholders’ overall losses.  Our strategy is to team registered nurses with claims adjusters who have long-term experience in the workers’ compensation system.  By reducing the cost of claims, we ultimately help our policyholder reduce the cost of its workers’ compensation insurance through lower experience modification factors.

We provide our policyholders with an active claims management program and strive for rapid, reasonable closure of all claims.  After we receive notice of a lost-time injury, our registered nurses or adjusters immediately contact the injured worker to assist with the injured worker’s care and prompt return to work.  If an injury is significant and meets specified criteria, we will assign a registered nurse to assist in the management of that claim.  Working as a team with claims adjusters, our nurses direct and coordinate the medical treatment from inception until the medical component of the claim has been resolved.  The same claims adjuster manages the claim until it is resolved.

Claims can only be handled appropriately when adjusters and nurses have enough time to devote to each case.  We believe that our claims handling procedures result in reduced insurance losses and lower litigation expenses.  Our goal is to maintain a maximum of 125 lost-time claims per adjuster.  We have hired local claims professionals in each region because we believe individuals familiar with the local regulations and healthcare providers are best qualified to handle local claims.

Our injury notification call center operates 24 hours a day, seven days a week.  To report a claim, policyholders call a toll-free number and receive immediate attention, or alternatively, a claim may be reported via the internet.  We provide electronic reporting capability of injuries where required.  To expedite our response, the appropriate regional claims department leader is immediately contacted when catastrophic claims are reported.

Choice of medical providers for injured workers is determined by law in each state jurisdiction.  In some states the injured worker is allowed their choice of treating physician throughout the length of the claim.   In others the employer/carrier directs the medical care choosing the treating physician. Yet, in others the employer/carrier must provide an entire network of medical professionals for the employee to pick from.  

We work regularly with local vendors, including attorneys, medical professionals and investigators, to bring local expertise to our reported claims.  We pay special attention to reducing costs in each region and have established discounting arrangements with these groups.  We use preferred provider organizations, bill review and utilization management to closely monitor medical costs and to verify that healthcare providers charge no more than reasonable and customary charges for the treatment rendered or adhere to an agreed upon fee schedule, as appropriate.  By reducing expenses and achieving cost savings, we are able to provide injured workers access to quality medical treatment while charging lower premiums.

Loss and Loss Adjustment Expense Reserves

Accounting for workers’ compensation insurance requires us to estimate the liability for the expected ultimate cost of unpaid losses and LAE, referred to as loss reserves, as of a balance sheet date.  The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those previously estimated for a time period is known as “loss development.”  Development is unfavorable when losses close for more than the levels at which they were reserved or when subsequent estimates indicate a basis for reserve increases on open claims.  Loss development, whether due to an increase in estimated losses, or a decrease in estimated losses, is reflected currently in earnings through an adjustment to incurred losses for the period in which the development is recognized.  If the loss development is due to an increase in estimated losses, the previously estimated losses are considered “deficient;” if the loss development is due to a decrease in estimated losses, the previously estimated losses are considered “redundant.”  When there is no deficiency in loss development, the previously estimated losses are considered “adequate.”  In each of the last 10 years, we have had redundancy in our net loss reserves, which we believe reflects our conservative methodology.

9

We seek to provide estimates of loss reserves that equal the expected ultimate loss.  Maintaining the adequacy of loss reserve estimates is an inherent risk of the workers’ compensation insurance business.  We use an independent actuarial consulting firm to assist in the evaluation of the adequacy of our loss reserves.  Workers’ compensation claims may be paid over a long period of time.  Estimating reserves for these claims may be more uncertain than estimating reserves for other lines of insurance with shorter or more definite periods between occurrence of the claim and final determination of the loss.  We endeavor to minimize this risk by closing claims promptly and by relying on the estimates of our professional claims adjusting staff, supplemented by actuarial estimation techniques.  The two main components of loss reserves are: (1) case reserves for reported claims and (2) reserves for claims incurred but not reported (“IBNR”).  Case reserves are estimates of future claim payments based upon periodic case-by-case evaluation and the judgment of our claims adjusting staff.  These case reserves are updated and reviewed continuously to reflect current information.  IBNR is an actuarial estimate of claim payments for a particular time period that are not considered in the case reserve estimates.  IBNR reserves, unlike case reserves, do not apply to a specific claim, but rather apply to the entire body of claims arising from a specific time period.  IBNR primarily provides for costs due to:

· future claim payments and LAE in addition to case reserves due to unforeseen or unknown events;

· additional claim payments on closed claims;

· claims that have not yet been reported to us; and

· development on claims that have been reported to us, but not yet recorded in our ledger.

Judgment is required in actuarial estimation to ascertain the relevance of historical payment and claim closure patterns under current facts and circumstances.  We continually monitor loss development trends and data to establish adequate premium rates and reasonable loss reserves estimates.  The adequacy of loss reserves, which are based on estimates, is inherently uncertain and represents a significant risk to the business, which we attempt to mitigate.  No assurance can be given whether the ultimate liability will be more or less than such estimates.

Case reserves for reported claims are established on a claim-by-claim basis.  Case reserve amounts are determined by our claims examiners, based on the examiner’s judgment and experience, and on our reserving practices.  Our reserving practices account for the type of risk, the circumstances surrounding the claim or policy provisions relating to the type of loss and historical paid loss and LAE data for similar claims.  Case reserves are not established for unallocated loss adjustment expense (“ULAE”) (expenses incurred to manage claims but which cannot be allocated to a specific claim), and the entire reserve for ULAE is established primarily based upon our historical paid data.  Our management and independent actuarial consulting firm regularly monitor reserve adequacy for losses that have occurred and been reported and we adjust such reserves as necessary.

Loss and LAE reserves for IBNR are estimated based on many variables, including:

· historical and statistical information;

· inflation;

· legal developments;

· the regulatory environment;

· benefit levels;

· economic conditions;

· judicial administration of claims;

· general frequency and severity trends;

· medical costs; and

· other factors affecting the adequacy of loss reserves.

10

Since 1992, we have retained an independent actuarial consulting firm to perform a comprehensive study of our IBNR reserves.  Our independent actuarial firm estimates IBNR three times annually (as of June 30, September 30 and December 31).  In this study, the consultant firm determines an estimate of IBNR by accident year for each state on both a gross and net of reinsurance basis.  During the course of each study, our management and actuary review preliminary analysis and provide additional information and feedback that the consulting firm may use in its final analysis.  In addition, our internal actuaries review the independent actuarial consulting firm’s studies for reasonableness.  Our internal actuaries perform an estimate of IBNR using the same methods used by the independent actuarial firm each year for the quarter ending March 31.  We update our IBNR estimates based on the best estimate offered in the study performed for each respective quarter.

Changes in our operations and management philosophy also may cause actual developments to vary from the past.  A shift to underwriting more or less hazardous risk classifications, hiring of new claims personnel or changing claims servicing vendors and third party administrators may change rates of reserve development, payments and claims closings, increasing or decreasing claims severity and closing rates.

Adjustments in aggregate reserves are reflected in the operating results of the period during which such adjustments are made.  Although claims for which reserves are established may not be paid for several years or more, we do not discount loss reserves in our financial statements other than for select policies issued in Texas that have fixed or determinable future payments.

The following table provides a reconciliation of the beginning and ending loss reserves.

	2007			2006
Unpaid losses and LAE, gross of related reinsurance recoverables, at beginning of period	$	334,363		$	309,857
Less reinsurance recoverables on unpaid losses and LAE at beginning of period		72,296			78,659
Unpaid losses and LAE, net of related reinsurance recoverables, at beginning of period		262,067			231,198
Add provision for losses and LAE, net of reinsurance, occurring in:
Current period		163,070			177,841
Prior periods		(36,508	)		(14,171	)
Incurred losses during the current period, net of reinsurance		126,562			163,670
Deduct payments for losses and LAE, net of reinsurance, occurring in:
Current period		52,974			56,448
Prior periods		77,784			76,353
Payments for losses and LAE during the current period, net of reinsurance		130,758			132,801
Unpaid losses and LAE, net of related reinsurance recoverables, at end of period		257,871			262,067
Reinsurance recoverables on unpaid losses and LAE at end of period		66,353			72,296
Unpaid losses and LAE, gross of reinsurance recoverables, at end of period	$	324,224		$	334,363

We experienced reserve redundancies of $36.5 million and $14.2 million during the years ended December 31, 2007 and 2006, respectively.  In addition to the redundancies, prior accident year losses were also reduced by $1.4 million and $0.7 million, respectively, from the Florida Special Disability Trust Fund (“SDTF”), during 2007 and 2006.  As collection from the Florida SDTF is uncertain, we record these recoveries only when received and do not accrue for future recoveries in Florida.  These recoveries reduce paid and incurred losses when received.  We also recovered approximately $0.4 million and $0.7 million, respectively, from South Carolina’s fund in 2007 and 2006.

11

The following tables show changes in the historical loss reserves, on a gross basis and net of reinsurance, for the insurance subsidiaries for the 10 years ended December 31, 2007.  The top line of each table shows the reserve recorded at each year-end.  Such amount represents an estimate of unpaid losses and LAE occurring in that year as well as future payments on claims occurring in prior years.  The upper portion of these tables (cumulative paid) present the cumulative amounts paid during subsequent years on those losses for which reserves were carried as of each specific year.  The lower portions (reserves re-estimated) show the re-estimated amounts of the previously recorded reserve based on experience as of the end of each succeeding year.  The re-estimate changes as more information becomes known about the actual losses for which the initial reserve was carried.  An adjustment to the carrying value of unpaid losses for a prior year will also be reflected in the adjustments for each subsequent year.  For example, an adjustment made in the 1997 year will be reflected in the re-estimated ultimate net loss for each of the years thereafter.  The cumulative redundancy (deficiency) line represents the cumulative change in estimates since the initial reserve was established.  It is equal to the difference between the initial reserve and the latest re-estimated reserve amount.  A redundancy means that the original estimate was higher than the current estimate.  A deficiency means that the current estimate is higher than the original estimate.

	1997		1998		1999		2000		2001		2002		2003		2004		2005		2006		2007
	(Dollars in thousands)
Net reserves for losses and loss adjustment expenses
Originally estimated		67,872		56,191		43,432		70,641		114,273		146,631		156,695		190,543		231,198		262,067		257,871
Net cumulative amounts paid as of:
One year later		30,576		30,165		9,220		28,687		51,514		61,919		59,322		54,709		76,352		77,784
Two years later		43,982		39,529		15,334		41,302		71,328		88,031		81,043		90,014		109,470
Three years later		49,256		35,995		18,827		46,860		81,276		101,937		96,850		105,526
Four years later		51,337		35,062		22,207		50,281		87,829		108,504		104,609
Five years later		48,422		35,941		22,740		52,119		89,691		111,041
Six years later		48,169		35,439		23,135		53,030		90,748
Seven years later		47,038		35,547		23,505		53,358
Eight years later		46,809		35,731		23,417
Nine years later		46,866		35,633
Ten years later		46,635
Net reserves re-estimated as of:
One year later		67,613		55,445		45,191		81,707		113,857		145,613		148,358		165,851		217,027		225,559
Two years later		64,514		56,429		45,374		73,017		110,234		133,298		135,175		165,511		193,921
Three years later		64,679		56,172		40,973		70,271		104,074		127,990		137,132		153,476
Four years later		64,749		52,435		39,615		63,590		101,011		129,313		131,501
Five years later		60,468		50,102		32,754		61,389		101,708		125,547
Six years later		58,288		43,371		30,720		61,906		98,944
Seven years later		52,649		41,825		30,766		59,191
Eight years later		51,377		41,655		28,072
Nine years later		51,190		39,119
Ten years later		49,209
Net cumulative redundancy		18,663		17,072		15,360		11,450		15,329		21,084		25,194		37,067		37,277		36,508		–
Gross reserves—December 31		86,511		117,520		133,803		151,693		198,954		227,714		251,122		297,698		309,857		334,363		324,224
Reinsurance recoverables		18,639		61,329		90,371		81,052		84,681		81,083		94,427		107,155		78,659		72,296		66,353
Net reserves—December 31		67,872		56,191		43,432		70,641		114,273		146,631		156,695		190,543		231,198		262,067		257,871
Gross re-estimated reserves		71,577		82,388		104,052		151,078		172,513		195,141		217,241		245,763		256,035		287,042
Re-estimated reinsurance recoverable		22,368		43,269		75,980		91,887		73,569		69,594		85,740		92,287		62,114		61,483
Net re-estimated reserves		49,209		39,119		28,072		59,191		98,944		125,547		131,501		153,476		193,921		225,559

12

	1997		1998		1999		2000		2001		2002		2003		2004		2005		2006		2007
	(Dollars in thousands)
Gross reserves for losses and loss adjustment expenses
Originally estimated		86,511		117,520		133,803		151,693		198,954		227,714		251,122		297,698		309,857		334,363		324,224

Gross cumulative amounts paid as of:
One year later	34,118	42,298	45,026	68,631	64,480	71,578	75,217	88,128	82,427	81,583
Two years later	49,763	60,676	61,309	91,113	93,975	103,504	115,539	129,507	119,344
Three years later	56,414	60,926	65,837	105,642	109,068	125,748	136,039	148,817
Four years later	60,259	60,561	76,254	112,271	122,011	136,685	147,657
Five years later	58,345	66,720	78,089	116,989	127,115	142,856
Six years later	62,756	66,221	80,255	119,168	131,160
Seven years later	61,393	67,550	81,424	120,923
Eight years later	62,208	68,112	82,094
Nine years later	62,030	67,960
Ten years later	61,202
Gross reserves re-estimated as of:
One year later	94,628	116,915	130,266	176,953	192,111	224,735	241,602	270,833	287,863	287,042
Two years later	91,504	115,139	126,840	166,521	189,484	207,293	230,932	265,231	256,035
Three years later	92,157	105,894	117,039	166,918	179,673	206,031	229,397	245,763
Four years later	90,727	97,746	119,491	157,125	180,844	205,169	217,241
Five years later	83,783	97,881	109,879	156,240	180,516	195,141
Six years later	84,464	89,001	108,916	155,635	172,513
Seven years later	77,643	87,145	108,109	151,078
Eight years later	75,596	85,960	104,052
Nine years later	74,344	82,388
Ten years later	71,577
Gross cumulative redundancy (deficiency):	14,934	35,132	29,751	615	26,441	32,573	33,881	51,935	53,822	47,321	–

Second Injury Funds

Many states have laws that establish second injury funds to provide compensation to injured employees for aggravation of a prior condition or injury.  Funding is provided either by assessments based on paid losses or premium surcharge mechanisms.  The Florida SDTF was established to promote the re-hiring of injured workers by providing a reimbursement for certain qualifying claims made by those injured workers subsequent to their re-hiring.  We are able to submit such second injury claims to the Florida SDTF and, if the claims are accepted, we are reimbursed for part of the cost of the claim.  The Florida SDTF stopped accepting new second injury claims for injuries that occurred after January 1, 1998.  We bill the Florida SDTF and receive reimbursements as we make payments on accepted claims.  As of December 31, 2007, an additional $0.1 million for which we had submitted reimbursement claims had been accepted but not yet paid by the Florida SDTF.  As collection is uncertain, we record SDTF reimbursements only when received and do not accrue for future recoveries.  We have submitted second injury claims to the Georgia, Texas and South Carolina second injury funds.  The relevant claims files are currently being reviewed by those states.  Indiana and Illinois also have similar funds; however, we have not submitted any second injury claims in those states.  We recovered $2.3 million, $1.4 million and $2.2 million during 2007, 2006 and 2005, respectively, from the Florida SDTF and other states’ comparable funds.

Reinsurance

Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of its premiums to a reinsurer, or assuming company, as payment for the reinsurer assuming a portion of the risk.  Reinsurance agreements may be proportional in nature, under which the assuming company shares proportionally in the premiums and losses of the ceding company.  This arrangement is known as quota share reinsurance.  Reinsurance agreements may also be structured so that the assuming company indemnifies the ceding company against all or a specified portion of losses on underlying insurance policies in excess of a specified amount, which is called an “attachment level” or “retention” in return for a premium, usually determined as a percentage of the ceding company’s primary insurance premiums.  This arrangement is known as excess of loss reinsurance.  Excess of loss reinsurance may be written in layers, in which a reinsurer or a group of reinsurers accepts a band of coverage up to a specified amount.  Any liability exceeding the outer limit of the program is retained by the ceding company.  The ceding company also bears the credit risk of a reinsurer’s insolvency.  In accordance with general industry practices, we purchase excess of loss reinsurance to protect against the impact of large, irregularly-occurring losses in the workers’ compensation business, which would otherwise cause sudden and unpredictable changes in net income and capital of our insurance subsidiaries.

13

Like other insurers, we have managed our risks in part through excess of loss and quota share reinsurance agreements.  Reinsurance is used principally:

· to reduce net liability on individual risks;

· to provide protection for catastrophic losses; and

· to stabilize underwriting results.

Excess of Loss Reinsurance

Effective January 1, 2007, we entered into an excess of loss reinsurance treaty in various layers for losses in excess of a $2.0 million retention up to $10.0 million in varying percentages from Munich Reinsurance America, Inc., rated “A” by A.M. Best, Everest Reinsurance Company, rated “A+” by A.M. Best, Max Re, rated “A-” by A.M. Best, AXA Re, rated “A” by A.M. Best, Hannover Ruckversicherungs-Aktiengesellschaft, rated “A” by A.M. Best, Aspen Insurance UK, Ltd., rated “A” by A.M. Best, Liberty Syndicate 4472, rated “A” by A.M. Best, Brit Syndicate 2987, rated “A” by A.M. Best, and Safety National Casualty Corporation, rated “A” by A.M. Best. The premium for this agreement is equal to a fixed percentage of the direct premiums earned subject to the agreement.

Effective January 1, 2007, we entered into a catastrophe excess of loss reinsurance agreement with Arch Re, rated “A” by A.M. Best, Aspen Insurance UK, Ltd., rated “A” by A.M. Best, AXA Re, rated “A” by A.M. Best, IOA/Catlin  rated “A” by A.M. Best,  Max Re Ltd., rated “A-” by A.M. Best, Odyssey AM Corporation, rated “A” by A.M. Best, Chaucer Syndicates Limited 1084 & 1301, rated “A” by A.M. Best, Liberty Syndicate 4472, rated “A” by A.M. Best, Brit Syndicate 2987, rated “A” by A.M. Best,  Brit Insurance Limited, rated “A” by A.M. Best, and Danish Re Syndicate 1400, rated “A” by A.M. Best. Under this agreement, we cede $20.0 million of ultimate net loss for any one occurrence in excess of $10.0 million per occurrence to the reinsurers.  The maximum loss on any one life ceded under the treaty was $10.0 million, up from $5.0 million in the prior year.  The premium for this agreement is equal to a percentage of the earned premium subject to the agreement.

Both of our excess of loss reinsurance agreements are subject to various exclusions and limitations.  These agreements nevertheless reduce our exposure not only to catastrophic claims, but also to any increased frequency of claims of intermediate severity that may result from economic, legal, regulatory or social changes.

Effective January 1, 2008, we entered into new excess of loss and catastrophe reinsurance treaties that are structured in various layers.  These treaties are substantially comparable to our 2007 reinsurance treaties and carry reinsurance protection up to a maximum of $30.0 million per occurrence, subject to our retention of the first $2.0 million.  There has been no material change in our 2008 reinsurance costs from our 2007 reinsurance costs.

Quota Share Reinsurance

Our practice is to select reinsurers with an A.M. Best rating of “A-” or better.  Effective January 1, 2004, we entered into a 30% quota share reinsurance agreement with a company rated “A++” by A.M. Best.  Under the agreement, we ceded 30% of the subject written premium (defined as gross premiums written less specific excess reinsurance premiums) in 2004, with a provisional ceding commission of 31%.  The reinsurer’s liability was limited to 130% of the gross earned reinsurance premium under any agreement year.  In addition, the reinsurer’s liability could not exceed the reinsurer’s portion of the estimated net loss as evaluated and reported by us 24 months after the inception of each agreement year.  This treaty was terminated for new and renewal business effective July 1, 2004.  Furthermore, the remaining exposures for claims occurring prior to June 30, 2004 were commuted.  Effective July 1, 2005, we terminated the quota share reinsurance that we maintained on a run-off basis for policies written prior to June 30, 2004.

Although we did not enter into any quota share reinsurance for new and renewal business in 2006, 2007 or 2008, we may determine to purchase such coverage in the future based upon our premium growth and capitalization and the terms of available quota share reinsurance.

14

Recoverability of Reinsurance

In addition to selecting financially strong reinsurers, we continue to monitor and evaluate our reinsurers to minimize our exposure to credit risks or losses from reinsurer insolvencies.  Reinsurance makes the assuming reinsurer liable to the ceding company, or original insurer, to the extent of the reinsurance.  It does not, however, discharge the ceding company from its primary liability to its policyholders in the event the reinsurer is unable to meet its obligations under such reinsurance.  Therefore, we are subject to credit risk with respect to the obligations of our reinsurers.  Recent natural disasters, such as Hurricanes Katrina, Rita and Wilma have caused unprecedented insured property losses, a significant portion of which will be borne by reinsurers.  If a reinsurer is active both in this market and in the workers’ compensation insurance market, its ability to perform its obligations in the latter market may be adversely affected by events unrelated to workers’ compensation insurance losses.  We regularly perform internal reviews of the financial strengths of our reinsurers.  However, if a reinsurer is unable to meet any of its obligations to the insurance subsidiaries under the reinsurance agreements, our insurance subsidiaries would be responsible for the payment of all claims and claims expenses that we have ceded to such reinsurer.  We do not believe that our insurance subsidiaries are currently exposed to any material credit risk.

The availability, amount and cost of reinsurance are subject to market conditions and to our experience with insured losses.  There can be no assurance that our reinsurance agreements can be renewed or replaced prior to expiration upon terms as satisfactory as those currently in effect.  If we were unable to renew or replace our reinsurance agreements, or elect not to obtain quota share reinsurance:

· our net liability on individual risks would increase;

· we would have greater exposure to catastrophic losses;

· our underwriting results would be subject to greater variability; and

· our underwriting capacity would be reduced.

Certain information regarding our ceded reinsurance recoverable is provided in the following table:

	As of December 31, 2007
Reinsurance Carrier	Rating(1)			Paid Losses			Unpaid Losses		Total
				(Dollars in thousands)
Aspen Insurance UK, Ltd.		A		$	(15	)	$	2,033	$	2,018
Continental Casualty Company		A			1,390			30,828		32,218
Employers Reinsurance Corporation		A	+		(11	)		1,991		1,980
Everest Reinsurance Company		A	+		25			3,618		3,643
Hannover Ruckversicherungs-Aktiengesellschaft		A			(26	)		4,365		4,339
Max Re Ltd.		A	-		(44	)		4,434		4,390
Munich Reinsurance Amer Inc.		A	+		13			8,007		8,020
National Union Fire Ins. Co. of Pittsburg		A	+		–			2,433		2,433
Swiss Reinsurance America Corporation		A	+		105			5,214		5,319
All others					17			3,430		3,447
Total				$	1,454		$	66,353	$	67,807

(1) A.M. Best’s highest financial strength ratings for insurance companies are “A++” and “A+” (superior) and “A” and “A-” (excellent).

15

Intercompany Reinsurance Pooling Agreement

Our insurance subsidiaries are parties to an intercompany pooling agreement.  Under such agreement, the results of underwriting operations of AmCOMP Assurance are transferred to and combined with those of AmCOMP Preferred and the combined results are then reapportioned.  For 2007, the proportions under the pooling agreement are as follows:

· AmCOMP Preferred—63%

· AmCOMP Assurance—37%

Transactions under the pooling agreement are eliminated in consolidation and have no impact on our consolidated financial statements.

Competitive Strengths

We believe that we have the following competitive strengths:

· Strong Distribution Relationships.  We have established strong relationships with our independent agents by emphasizing personal interaction, offering superior services and maintaining an exclusive focus on workers’ compensation insurance.  These agents are attracted to us because of the level of service we provide to them and our policyholders and our focus on small to mid-sized employers.  Our field underwriters work closely with independent agents to market and underwrite our business.  These underwriters regularly visit agents and participate in presentations to insureds.  Our field underwriters’ extensive personal interaction with independent agents and policyholders has led to an enhanced understanding of the businesses we underwrite and the needs of prospective insureds.

· Specialized Underwriting Approach.  We price our policies based on the specific risk associated with each potential insured rather than solely on the industry class in which such potential insured is classified.  Our underwriters average 18 years of experience underwriting workers’ compensation insurance.  We believe our underwriting approach and experience have played pivotal roles in enabling us to outperform the workers’ compensation insurance industry based on our accident year loss ratios.

· Loss Prevention Services.  We believe the value-added services that we provide strengthen our relationships with our policyholders and enable them to reduce their losses from employee injuries.  Loss prevention specialists conduct pre- and post-underwriting safety consultations with policyholders.  They also develop and implement loss prevention programs for these customers.  Our loss prevention personnel, who average 16 years of industry experience, conduct on-site evaluations for most of our policyholders annually.

· Proactive Claims Management.  We provide our policyholders with an active claims management program and strive for rapid closure of claims.  As of December 31, 2007, we had closed 95.6 %, 98.3 % and 99.2% of all reported claims for accident years 2006, 2005 and 2004, respectively.  Our injury notification call center operates 24 hours a day, seven days a week, and internet claims reporting is also available so that injured workers and policyholders can report claims promptly.  This enables our nurses or claims adjusters to conduct an injury assessment and begin to develop a program for treatment within 24 hours after notification.  Our experienced claims adjusters average 12 years of workers’ compensation insurance industry experience.  Our policy is that each claims adjuster be responsible for a maximum of 125 open indemnity cases.  This allows our claims adjusters to devote substantial attention to each claim and facilitates more effective claims management.  Our registered nurses have an average of approximately 26 years of nursing experience.

· State Focused Operations.  Our core operating philosophy is “local people doing business with local people.”  We currently focus on 17 states that we believe provide us with the greatest opportunity for near-term profitable growth.  Our strategy in these states is executed by our regional presidents and their local teams who we believe have a deep understanding of the business climate and policyholder base and have strong relationships with agents operating in these states.

16

· Prudent Reserving.  Workers’ compensation claims are often paid over a long period of time.  We have demonstrated consistent success in estimating our liabilities for losses and LAE and establishing adequate reserves, despite challenges faced by the workers’ compensation insurance industry.  Our net loss reserves as of the end of each of the 10 years from 1997 to 2006 have proven to be redundant as developed through December 31, 2007, meaning that our reserves as originally estimated were higher than what our experience as of December 31, 2007 indicates.

· Focus on Small to Mid-Sized Employers.  We believe that we have achieved significant scale and profitability, throughout our 26-year history, by specializing on a target market of small to mid-sized businesses, principally employers with premiums between $10,000 and $100,000 per year.  Based on our extensive experience with independent agents and employers in this market, we believe our target market is not subject to the same degree of price competition as larger accounts.  Furthermore, we believe that employers in this size category are not as sensitive to A.M. Best ratings and that they value our service-oriented approach to business to a greater extent due to their limited resources.

· Proven Leadership and Experienced Management Team and Employees.  Our senior management team, consisting of Fred R. Lowe, as chairman of the board, president and chief executive officer, Debra Cerre-Ruedisili, as executive vice president, chief operating officer and director and Kumar Gursahaney, as senior vice president, chief financial officer and treasurer, has an average of 32 years of insurance industry experience and 25 years of workers’ compensation insurance experience.  We believe that hiring and retaining management and employees with insurance experience are crucial to our operating performance.  We offer our employees a positive working environment and comprehensive benefits and incentives to remain with us.

Competition

The market for workers’ compensation insurance policies is highly competitive.  Our competitors include, but are not limited to, other specialty workers’ compensation carriers, multi-line insurance companies, professional employer organizations, third party administrators, self-insurance funds, state insurance pools and, in Texas, “opt out” programs.  Many of our existing and potential competitors are significantly larger and possess considerably greater financial and other resources than we do.  Consequently, they can offer a broader range of products, provide their services nationwide, and/or capitalize on lower expenses to offer more competitive pricing.  We compete with several national carriers including Zenith National Insurance Corporation, St. Paul Travelers, The Hartford Financial Services Group, Inc. and Liberty Mutual Group.  In many states, our most significant competitors are regional carriers.  For example, in Texas, a major competitor is Texas Mutual, in Florida, our primary competitors are Summit/Bridgefield, FCCI Insurance Group and recently FFVA Mutual Insurance Company and FHM Insurance Company, and in Wisconsin, our primary competitors are United Heartland, Acuity, State Fund Mutual, West Bend Mutual, General Casualty and Sentry.  In Indiana, our principal competition is from Accident Fund, Amerisure, Indiana Insurance and Selective Insurance Company.  In Tennessee, our main competition comes from FCCI Insurance Group, FFVA Mutual Insurance Company, Accident Fund, Bridgefield and national/regional multi-line carriers.

Competition in the workers’ compensation insurance field is based on many factors, including, but not limited to:

· pricing (either through premium rates or dividends);

· level of service;

· insurance ratings;

· capitalization levels;

· quality of care management services;

· the ability to reduce net loss ratios;

· effective loss prevention; and

· the ability to reduce claims expenses.

17

In the 17 states in which we currently focus our operations, aggregate workers’ compensation direct premiums written totaled $22.1 billion in 2006.  Approximately 38%, or $8.4 billion, of this amount pertains to business written from policyholders that have annual policy premiums between $10,000 and $100,000, which is our core policyholder base.  We believe that our products and services are competitively priced.  In Florida and Wisconsin, premium rates are fixed by that state’s insurance regulators and are not a competitive factor.  Insurers in those two states compete principally on policyholder dividends, the availability of premium payment plans and service.  We also believe that our level of service, loss prevention programs, and our ability to reduce claims through our total care management strategy are strong competitive factors that have enabled us to retain existing policyholders and attract new policyholders.  Also, over the long run, our services provide employers the opportunity to reduce their experience modification factor and therefore their long-term workers’ compensation costs.

Regulation

General.  Our insurance subsidiaries are subject to regulation by government agencies in the states in which they do business.  The nature and extent of such regulation varies by jurisdiction but typically involves:

· standards of solvency, including risk-based capital measurements;

· restrictions on the nature, quality and concentration of investments;

· restrictions on the types of terms that we can include in the insurance policies we offer;

· mandates that may affect wage replacement and medical care benefits paid under the workers’ compensation system;

· procedures for adjusting claims, which can affect the ultimate amount for which a claim is settled;

· restrictions on the way rates are developed and premiums are determined;

· the manner in which general agencies may be appointed;

· required methods of accounting for regulatory reporting;

· establishment of reserves for unearned premiums, losses and other purposes;

· limitations on our ability to transact business with affiliates;

· mergers, acquisitions and divestitures involving our insurance subsidiaries;

· licensing requirements and approvals that affect our ability to do business;

· compliance with medical privacy laws;

· potential assessments for the closure of covered claims under insurance policies issued by impaired, insolvent or failed insurance companies; and

· the amount of dividends that our insurance subsidiaries may pay to us, the parent holding company.

In addition, state regulatory examiners perform periodic examinations of insurance companies.  This regulation is generally intended for the protection of policyholders, not insurance companies or their stockholders.  In general, state regulations governing workers’ compensation systems and the insurance business impose restrictions and limitations on our business operations that are not imposed on unregulated businesses.

18

Premium Rate Restrictions.  Among other matters, state laws regulate not only the amounts and types of workers’ compensation benefits that must be paid to injured workers, but in some instances the premium rates that may be charged by us to insure employers for those liabilities.

Administered Pricing States.  The regulatory agencies in Florida and Wisconsin set the premium rates we may charge for our insurance products.  The Florida OIR approves manual premium rates for each of the approximately 650 employment classification codes prepared and filed by National Council on Compensation Insurance (“NCCI”), the authorized state rating organization.  In accordance with Florida’s Consent to Rate program, we are authorized by law to deviate from these approved rates for up to 10% of the policies we write in Florida.  The Florida Department of Financial Services, Division of Workers’ Compensation, regulates levels of benefit payments to injured employees.  Similarly, Wisconsin’s Department of Insurance sets standard rates for workers’ compensation insurance.

Financial, Dividend and Investment Restrictions.  State laws require insurance companies to maintain minimum surplus balances and place limits on the amount of insurance a company may write based on the amount of that company’s surplus.  These limitations may restrict the rate at which our insurance operations can grow.

State laws also require insurance companies to establish reserves for payments of policyholder liabilities and impose restrictions on the kinds of assets in which insurance companies may invest.  These restrictions may require us to invest in assets more conservatively than we would if we were not subject to state law restrictions and may prevent us from obtaining as high a return on our assets as we might otherwise be able to realize.

Under Florida law, without regulatory approval, an insurance company may not pay dividends or other distributions of cash or property to its stockholders within a 12-month period with a total fair market value exceeding the larger of 10% of surplus as of the preceding December 31st or 100% of its prior year’s net income, not including realized capital gains, or net investment income plus a three-year carryforward.  This may limit the amount of dividends that we receive from our insurance subsidiaries, which in turn may limit the amount of capital available to us for debt service, expansion, dividend payments to stockholders, and other purposes.  At December 31, 2007, our insurance subsidiaries were authorized to pay approximately $17.6 million in dividends without additional regulatory approval.

Statutory Accounting and Solvency Regulations.  State regulation of insurance company financial transactions and financial condition are based on statutory accounting principles (“SAP”).  SAP differs in a number of ways from accounting principles generally accepted in the United States of America (“GAAP”), which governs the financial reporting of most other businesses.  In general, SAP financial statements are more conservative than GAAP financial statements, reflecting lower asset balances, higher liability balances and lower equity.

State insurance regulators closely monitor the financial condition of insurance companies reflected in SAP financial statements and can impose significant financial and operating restrictions on an insurance company that becomes financially impaired.  Regulators generally have the power to impose restrictions or conditions on the following kinds of activities of a financially impaired insurance company: transfer or disposition of assets, withdrawal of funds from bank accounts, extension of credit or advancement of loans and investment of funds.

The National Association of Insurance Commissioners (“NAIC”) is a group formed by state insurance commissioners to discuss issues and formulate policy with respect to regulation, reporting and accounting of and by insurance companies.  Although the NAIC has no legislative authority and insurance companies are at all times subject to the laws of their respective domiciliary states and, to a lesser extent, other states in which they conduct business, the NAIC is influential in determining the form in which such laws are enacted.  Model Insurance Laws, Regulations and Guidelines, or the Model Laws, have been promulgated by the NAIC as a minimum standard by which state regulatory systems and regulations are measured.  Adoption of state laws that provide for substantially similar regulations to those described in the Model Laws is a requirement for accreditation by the NAIC.

Insurance operations are subject to various leverage tests, which are evaluated by regulators and rating agencies.  Florida law requires the insurance subsidiaries to maintain a ratio of 1.25 times written premiums to statutory surplus of no greater than 10-to-1 for gross premiums written and no greater than 4-to-1 for net premiums written.  Our premium leverage ratios as of December 31, 2007, on a statutory combined basis, were 1.6-to-1 and 1.6-to-1 on a gross and net premiums written basis, respectively.

19

Risk-based Capital Requirements.  The NAIC has adopted a risk-based capital, or RBC, formula to be applied to all insurance companies.  RBC is a method of measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile.  RBC standards are used by regulators to determine appropriate regulatory actions relating to insurers that show signs of weak or deteriorating conditions.  As of December 31, 2007, the total adjusted capital for AmCOMP Preferred and AmCOMP Assurance was 1,619% and 1,871% over the authorized control level, respectively.

The RBC Model Act provides for four different levels of regulatory attention depending on the ratio of the company’s total adjusted capital, defined as the total of its statutory capital, surplus and asset valuation reserve, to its risk-based capital.

· The “Company Action Level” is triggered if a company’s total adjusted capital is less than 200% but greater than or equal to 150% of its risk-based capital.  At the “Company Action Level,” a company must submit a comprehensive plan to the regulatory authority that discusses proposed corrective actions to improve its capital position.  A company whose total adjusted capital is between 250% and 200% of its risk-based capital is subject to a trend test.  A trend test calculates the greater of any decrease in the margin (i.e., the amount in dollars by which a company’s adjusted capital exceeds its risk-based capital) between the current year and the prior year and between the current year and the average of the past three years, and assumes that the decrease could occur again in the coming year.

· The “Regulatory Action Level” is triggered if a company’s total adjusted capital is less than 150% but greater than or equal to 100% of its risk-based capital.  At the “Regulatory Action Level,” the regulatory authority will perform a special examination of the company and issue an order specifying corrective actions that must be followed.

· The “Authorized Control Level” is triggered if a company’s total adjusted capital is less than 100% but greater than or equal to 70% of its risk-based capital, at which level the regulatory authority may take any action it deems necessary, including placing the company under regulatory control.

· The “Mandatory Control Level” is triggered if a company’s total adjusted capital is less than 70% of its risk-based capital, at which level regulatory authority is mandated to place the company under its control.

IRIS Ratio.  The Insurance Regulatory Information System (“IRIS”) is a system established by the NAIC.  It was designed to provide state insurance departments with an integrated approach to monitor the financial condition of insurers for the purposes of detecting financial distress and preventing insolvency.  In the statistical phase of IRIS, 12 industry ratios are identified and an IRIS standard for each of the financial ratios is compared with a company’s actual financial ratios.  Unusual results on four or more ratios generally lead to further inquiries or review from individual state insurance commissioners.  A ratio that falls outside the usual range is not considered a failing result.  Rather, unusual values are regarded as part of an early warning monitoring system.  Financially sound companies may have several ratios outside the usual ranges because of specific transactions that have the effect of producing unusual results.

As of December 31, 2007, AmCOMP Preferred and AmCOMP Assurance had one ratio outside the usual range, as set forth in the following table.

Ratio	Usual Range	Actual Results	Reason for Unusual Results
AmCOMP Preferred
Investment Yield	3.0% to 6.5%	2.0%	Low investment yields are due to approval and payment of inter-company surplus note interest during the year, which reduces investment income.  Surplus note interest is recognized on a statutory accounting basis when approved by the Florida OIR.  On a GAAP basis this expense was accrued as incurred  and included in interest expense.  Additionally, statutory accounting policies do not recognize increases in the value of AmCOMP Assurance as investment income of AmCOMP Preferred.

20

Ratio	Usual Range	Actual Results	Reason for Unusual Results
AmCOMP Assurance
Investment Yield	3.0% to 6.5%	2.6%	Low investment yields are due to approval and payment of inter-company surplus note interest during the year, which reduces investment income.  Surplus note interest is recognized on a statutory accounting basis when approved by the Florida OIR.  On a GAAP basis this expense was accrued as incurred and included in interest expense.

Insurance Holding Company Regulation.  In addition to the regulatory oversight of our insurance subsidiaries, we are subject to regulation under Florida insurance holding company laws that contain certain reporting requirements including those requiring us, as the ultimate parent company, to file information relating to its capital structure, ownership, and financial condition and general business operations of its insurance subsidiaries.  These laws contain special reporting and prior approval requirements with respect to transactions among affiliates.

Stock Ownership Restrictions.  Florida statute Section 628.461 prohibits any person from acquiring 10% or more of the outstanding voting securities of us or any of our insurance subsidiaries without the prior approval of the Florida OIR.  Any person who acquires between 5% and 10% of the outstanding securities of us or any of our subsidiaries must file a disclaimer of control with the Florida OIR, provided that the acquirer is not going to participate in management or control.  If the acquirer is planning on participating in management or control, it must obtain prior approval from the Florida OIR for any acquisition exceeding 5%.  In connection with the proposed merger, Employers has filed a Form A with the Florida OIR requesting the required approvals, which request is currently pending.

In addition, many state insurance laws require prior notification to the state insurance department of a change of control of a non-domiciliary insurance company licensed to transact insurance in that state.  While these pre-notification statutes do not authorize the state insurance departments to disapprove the change of control, they authorize regulatory action (including a possible revocation of our authority to do business) in the affected state if particular conditions exist, such as undue market concentration.  No filings with state insurance departments, other than the filing of the Form A with the Florida OIR referenced above, are required to be made in connection with the proposed merger with Employers.

Privacy Regulations.  In 1999, the United States Congress enacted the Gramm-Leach-Bliley Act, which, among other things, protects consumers from the unauthorized dissemination of certain personal information.  Subsequently, a majority of states have implemented additional regulations to address privacy issues.  These laws and regulations apply to all financial institutions, including insurance and finance companies, and require us to maintain appropriate procedures for managing and protecting certain personal information of our customers and to fully disclose our privacy practices to our customers.  We may also be exposed to future privacy laws and regulations, which could impose additional costs and impact our results of operations or financial condition.  An NAIC initiative that impacted the insurance industry in 2001 was the adoption in 2000 of the Privacy of Consumer Financial and Health Information Model Regulation, which assisted states in promulgating regulations to comply with the Gramm-Leach-Bliley Act.  In 2002, to further facilitate the implementation of the Gramm-Leach-Bliley Act, the NAIC adopted the Standards for Safeguarding Customer Information Model Regulation.  Several states have now adopted similar provisions regarding the safeguarding of customer information.  Our insurance subsidiaries have established procedures to comply with the Gramm-Leach-Bliley related privacy requirements.

Federal Legislative Changes.  In response to the tightening of supply in certain insurance and reinsurance markets resulting from, among other things, the September 11, 2001 terrorist attacks, the Terrorism Risk Insurance Act of 2002 (the “2002 Act”) was enacted on November 26, 2002.  The principal purpose of the Act was to create a role for the Federal government in the provision of insurance for losses sustained in connection with terrorism.  Prior to the Act, insurance (except for workers’ compensation insurance) and reinsurance for losses arising out of acts of terrorism were largely unavailable from private insurance and reinsurance companies.

21

The program initiated by the 2002 Act applies to losses arising out of acts of terrorism that are certified as such by the Secretary of the Treasury.  In order to be certified as an act of terrorism under the 2002 Act, losses incurred are required to exceed $5.0 million, and the act may not be an act of domestic terrorism.  In addition, such losses may not arise out of an act of terrorism committed in the course of a war declared by the United States Congress, except with respect to workers’ compensation coverage.  Under the 2002 Act, Federal reimbursement is subject to an annual aggregate limit of $100.0 billion.  Each insurer is responsible for a deductible based on a percentage of its direct premiums earned in the previous calendar year. For losses in excess of the deductible, the Federal government would reimburse 90% of the insurer’s loss, up to the insurer’s proportionate share of the $100.0 billion.  Insurers would not be liable for payments for any portion of losses in excess of the $100.0 billion annual limit.

In December 2005, President Bush signed into law the Terrorism Risk Insurance Extension Act of 2005 (the “2005 Act”), which extended the 2002 Act for an additional two years to December 31, 2007.  While the underlying structure of the 2002 Act was left intact, the 2005 Act made some adjustments, including increasing the current insurer deductible to  20% of direct premiums earned in 2007. Our 2007 deductible was equal to 20% of 2006 direct premiums earned, or approximately $54 million.   Commencing January 1, 2007, for losses in excess of the deductible, Federal reimbursement decreased to 85% of the insurer’s loss, and Federal reinsurance is only available if industry aggregate insured losses from a certified act exceed $100.0 million.  Insurers must still provide terrorism insurance for events causing losses up to the above amount, even though Federal reinsurance is only available for events causing losses exceeding that amount.

In 2007, the Terrorism Risk Insurance Revision and Extension Act of 2007 (the “2007 Act”) was signed into law.  The 2007 Act extended the 2002 Act through December 31, 2014.  Effective January 1, 2008, the definition of terrorism includes domestic acts of terrorism.  In addition, under the 2007 Act, insurers must offer coverage for losses due to terrorist acts in all of their commercial property and casualty insurance policies.  The 2007 Act’s definition of property and casualty insurance includes workers’ compensation insurance.  Moreover, the workers’ compensation laws of the various states generally do not permit the exclusion of coverage for losses arising from terrorist acts or from nuclear, biological and chemical attacks.  In addition, we are not able to limit our loss arising from any one catastrophe or any one claimant.  Our reinsurance policies exclude coverage for losses arising out of terrorism and nuclear, biological and chemical attacks.  Therefore, acts of terrorism could adversely affect our business and financial condition.

We do not believe that the risk of loss to our insurance subsidiaries from acts of terrorism is currently significant.  Small businesses constitute a large proportion of our policies, and we avoid risks in high profile locations.  However, the impact of any future terrorist acts is unpredictable, and the ultimate impact on our insurance subsidiaries, if any, of losses from any future terrorist acts will depend upon their nature, extent, location and timing.

Employees

As of December 31, 2007, we had 480 employees, eight of whom were executive officers.  None of our employees is covered by a collective bargaining agreement.  We believe our relations with our employees are excellent.

Executive Officers

The following table provides information regarding our executive officers.  Executive officers serve at the pleasure of the board of directors.

Name	Age	Position
Fred R. Lowe	73	Chairman of the Board and Director, President and Chief Executive Officer
Debra Cerre-Ruedisili	52	Executive Vice President, Chief Operating Officer and Director
Kumar Gursahaney	51	Senior Vice President, Chief Financial Officer and Treasurer
George Harris	59	Senior Vice President, General Counsel
Timothy J. Spear	41	President, Mid-Atlantic Region
Lisa Perrizo	42	President, Midwest Region
Frank Pinson	53	President, Southern Region
Colin Williams	56	President, Texas Region

22

Fred R. Lowe has served as chairman of AmCOMP since September 2005 and has been AmCOMP’s president, chief executive officer and a director of AmCOMP since February 1997.  He is the chairman of each of AmCOMP’s subsidiaries.  Mr. Lowe co-founded Florida Administrators, Inc, a precursor to AmCOMP.  From 1992 until 1997, Mr. Lowe was an independent consultant, which included providing consulting services to Florida Administrators from 1994 to 1997.  From 1989 to 1992, Mr. Lowe held various executive positions with several financial service companies.  Mr. Lowe assisted in the conversion of FACCA-SIF, which later became AmCOMP Preferred, into a capitalized insurance company.  He attended Ohio University.

Debra Cerre-Ruedisili has served as executive vice president of AmCOMP since April 1997, chief operating officer since March 1998 and a director since September 1998.  Ms. Cerre-Ruedisili has served as a director of AmCOMP Assurance since September 1998 and as president and chief operating officer since January 2001.  Ms. Cerre-Ruedisili has served as the president, vice chairman and a director of AmCOMP Preferred since January 2001, and as the chief operating officer since January 2003.  Prior to joining AmCOMP, Ms. Cerre-Ruedisili served for 10 years as co-chief executive officer and chief operating officer of MedView Services Incorporated, a managed care provider.  From 1984 through 1987, Ms. Cerre-Ruedisili served as the risk manager of Kmart Corporation.  Prior to that, Ms. Cerre-Ruedisili was an attorney in private practice specializing in defense of workers’ compensation claims and a workers’ compensation claims adjuster and claims manager for Transamerica Insurance Group.  Ms. Cerre-Ruedisili served as a member of the Board of Governors of the Florida Workers’ Compensation Joint Underwriting Association from 1999 through 2003.  Ms. Cerre-Ruedisili has a B.A. in psychology from the University of Michigan and a J.D. from the University of Detroit.

Kumar Gursahaney joined AmCOMP in December 2003 as assistant vice president, finance.  He was appointed senior vice president, chief financial officer and treasurer of AmCOMP in July 2004.  Mr. Gursahaney served as vice president and chief financial officer for the insurance operations at Transportation Financial Group from November 2002 through November 2003 and as vice president and comptroller of the Domestic Brokerage Group of American International Group, Inc. (“AIG”) between 1986 and 1998.  Prior to joining AIG, Mr. Gursahaney was an Audit Senior in the New York office of Coopers & Lybrand (now PricewaterhouseCoopers) from 1983 through 1986.  Between 1998 and 2002, Mr. Gursahaney was a private investor.  He obtained a Bachelors degree in commerce, economics and accounting from the Sydenham College of Economics, Bombay, India.

George Harris joined AmCOMP in January 2007 as senior vice president and general counsel. Mr. Harris has practiced law in Palm Beach County, Florida for 33 years, with an emphasis in corporate, real property, banking and insurance law, primarily representing businesses, financial institutions and insurance companies. For the 20 years prior to joining AmCOMP, he was a principal in the law firm of Harris, Kukey & Helgesen, P.A., in Palm Beach Gardens, Florida. Mr. Harris received his Juris Doctor from Stetson University College of Law in St. Petersburg, Florida, and also graduated from Randolph Macon College in Ashland, Virginia with a B.A. in political science and advanced French studies.

Timothy J. Spear has served as president, Mid-Atlantic region, of AmCOMP since January 2006.  Mr. Spear also continues to be responsible for the field underwriting and marketing department for the Mid-Atlantic region.  Mr. Spear served as vice president of field services for AmCOMP’s Mid-Atlantic region from February 2003 to January 2006.  Mr. Spear joined AmCOMP in 1996, initially assisting with marketing efforts and, in 1997, he assumed the management responsibilities of the loss control department for the Southeast region.  In 1999, Mr. Spear became co-manager of the field underwriting and marketing department for AmCOMP’s Southeast region.  Before joining AmCOMP, Mr. Spear was a loss control underwriter with FCCI from 1990 to 1992 followed by four years in various capacities with Associated Business and Commerce Insurance Company, another Florida domiciled workers’ compensation insurance carrier.  He has more than 15 years of experience in the workers’ compensation industry.  Mr. Spear earned a B.S. in occupational safety from the University of Wisconsin-Whitewater.

Lisa Perrizo has served as president, Midwest region of AmCOMP since June 2004.  Ms. Perrizo joined AmCOMP in 1998 as manager of field underwriting for Wisconsin and thereafter assumed the management of operations in AmCOMP’s Wisconsin and Illinois offices.  From 1995 through 1998, Ms. Perrizo held various positions at USF&G/St. Paul (St. Paul/Travelers) including auto specialist, construction specialist and commercial account manager.  From 1992 through 1995, she was a senior casualty underwriter at Crum & Foster Insurance.  From 1987 through 1992, Ms. Perrizo was a multi-line commercial underwriter for Heritage Mutual Insurance Company (Acuity).  She has 18 years of experience in the property and casualty lines of business.  Ms. Perrizo has a B.B.A. in finance from the University of Wisconsin-Whitewater.

23

Frank Pinson joined AmCOMP in August 2005 as operations manager in Nashville, Tennessee. He was promoted to vice president, Midwest region, in January 2006, and to president, Southern region, in June 2006. From 2004 through 2005, Mr. Pinson was agency manager for Geny Insurance Agency.  From 2002 to 2004 he was president of the Middle Tennessee Insurance Agency.  From 2000 through 2001, he worked for Highlands Insurance Group as a regional vice president.  From 1997 through 2000, he worked for Harleysville Insurance Company as a regional vice president.  From 1984 through 1997, he worked for General Insurance Company, first as a branch manager and then later was promoted to resident vice president.  Prior to this position, he worked with several insurance companies and agencies in the Nashville area. Mr. Pinson has 30 years of experience in the insurance industry. He has a B.S. degree in business administration from Trevecca College, Nashville, Tennessee.

Colin Williams has served as president, Texas region, of AmCOMP since 1999.  From 1995 to 1999, he was an executive vice president of Acordia Southeast, an insurance brokerage agency.  From 1993 to 1995, he was a vice president/sales manager for Alexander & Alexander, an insurance agency.  From 1982 to 1993, he was an agency sales manager and agency president of Kenneth Murchison & Company, subsidiary president of Kmart Insurance Services in Dallas and corporate risk manager at the Kmart Corporation in Troy, Michigan.  Mr. Williams has a B.B.A. from the University of Wisconsin and an M.B.A. from Southern Methodist University.

Forward-Looking Statements and Associated Risks

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our operations and our results of operations that are based on our current expectations, estimates and projections.  Words such as “expects,” “intends,” “plans,” “projects,” believes,” “estimates” and similar expressions are used to identify these forward-looking statements.  These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.  Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.  Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements.  The reasons for these differences include changes in general economic and political conditions, including fluctuations in exchange rates, and the factors discussed below under the section entitled “Business—Risks Related to Our Business and Industry.”

Available Information

Our website address is www.amcomp.com.  We make available free of charge on the Investor Relations section of our website (ir.amcomp.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed or furnished with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.  We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of that Act, as well as our Code of Business Conduct and Ethics.  We do not intend for information contained in our website to be part of this Annual Report on Form 10-K.

You also may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

24

Item 1A. Risk Factors

You should carefully consider the risks described below, together with all of the other information included in this annual report.  The risks and uncertainties described below are not the only ones facing our company.  If any of the following risks actually occurs, our business, financial condition or operating results could be harmed.  Any of the risks described below could result in a significant or material adverse effect on our financial condition or results of operations, and a corresponding decline in the market price of our common stock.  You could lose all or part of your investment.

The information provided in this Item 1A is applicable to the period prior to the closing of the merger transaction with Employers.  Should such transaction not be consummated for any reason, the risk factors described would continue to be applicable to us, our business, our industry and our common stock.  The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in those forward-looking statements.  Please refer to the discussion under the heading “Forward-Looking Statements and Associated Risks” in Item 1.

Risks Related to Our Pending Merger

Completion of the proposed merger with Employers is subject to various conditions.  As a result, we cannot assure you that the proposed merger will be completed.

The completion of the proposed merger with Employers is subject to various conditions, including approval of the Merger Agreement by our stockholders, receipt of all authorizations, approvals and permits required to be obtained from any governmental authority in order to consummate the merger (without the imposition of a burdensome condition, as defined in the Merger Agreement), absence of any law or order that has the effect of making the merger illegal or otherwise preventing or prohibiting consummation of the merger and the absence of any material adverse effect upon us or our business.  We currently expect the merger to close by the end of the second quarter of 2008.  However, it is possible that factors outside our control could require the parties to complete the merger at a later time or not to complete it at all.  If the transaction is not completed, then we expect that our current management, under the direction of the Board of Directors, will continue to manage us.

Failure to complete the proposed merger with Employers could negatively impact our ability to operate our business.

Should the merger fail to close, our business could be negatively impacted.  Agents and policyholders who would prefer to deal with a carrier rated by A.M. Best may choose to take their business elsewhere.  Additionally, should employees choose to leave as result of the announced merger, we may be unable to replace them on a timely basis or at all.  The diversion of management’s attention from our day-to-day business and the unavoidable disruption to our business during the period before completion of the merger may make it difficult for us to maintain our financial and market position and could have a material adverse impact on our financial condition and results of operation.

Failure to complete the proposed merger with Employers could have a material adverse effect on the market price of our common stock.

Under the Merger Agreement, each issued and outstanding share of our common stock, other than dissenting shares or shares that we own as treasury stock, or shares owned by Employers or Merger Sub, will be converted into the right to receive $12.50 per share in cash.  Should the merger fail to close, our stock price may fall to the extent that the current market price of our common stock reflects market assumptions that the merger will be completed and the premium implied by the merger consideration will be realized.  As a result, stockholders may be unable to sell their shares at a price near the $12.50 that would be received in the merger.

In certain circumstances under the Merger Agreement, we are required to pay Employers a termination fee of $8 million, and any such payment could have a material adverse effect on our financial condition and results of operations.  In addition, if the transaction with Employers does not occur, there can be no assurance that we will be able to find another acquirer willing to pay an equivalent or a price better than the price to be paid by Employers under the Merger Agreement.

In certain circumstances, the Merger Agreement requires us to pay Employers a termination fee of $8 million in cash.  Employers and Merger Sub may also be entitled to recover additional damages and to require specific performance of the Merger Agreement.  If the transaction with Employers does not occur, there can be no assurance that we will be able to find another acquirer willing to pay an equivalent or a price better than the price to be paid by Employers under the Merger Agreement.  Should the Merger Agreement be terminated in circumstances under which we would be required to pay Employers the termination fee and/or costs and expenses, such payment(s) could have a material adverse effect on our financial condition and results of operations.

25

The Merger Agreement contains restrictive covenants that may limit our ability to respond to changes in market conditions or pursue business opportunities.

The Merger Agreement contains restrictive covenants that limit our ability to, among other things:

· authorize for issuance, issue, grant, sell, pledge, dispose of or propose to issue, grant, sell, pledge or dispose of any shares of, or any options, warrants, commitments, subscriptions or rights of any kind to acquire or sell any shares of, our capital stock or other securities or equity interests or any indebtedness of ours having voting rights or that is convertible or exchangeable into securities having such rights, including any securities convertible into or exchangeable for shares of stock of any class and any other equity-based awards, except for the issuance of shares of common stock pursuant to the exercise of options outstanding on the date of the Merger Agreement and set forth in the schedules to the Merger Agreement in accordance with their present terms;

· incur, create, assume, prepay or otherwise become liable for any indebtedness (directly, contingently or otherwise), make a loan or advance to or investment in any third party, or guarantee or endorse any indebtedness, liability or obligation of any person, except for indebtedness incurred under our existing credit facilities in the ordinary course of business consistent with past practice in an aggregate principal amount not to exceed $250,000;

· increase the wages, salaries, bonus, compensation or other benefits of any of our or our subsidiaries’ current or former consultants, officers, directors or employees, or enter into, establish, amend or terminate any of our employee benefit plans or any other employment, consulting, retention, change in control, collective bargaining, bonus or other incentive compensation, profit sharing, health or other welfare, stock option or other equity or equity-related, pension, retirement, consulting, vacation, severance, separation, termination, deferred compensation, fringe, perquisite, or other compensation or benefit plan, policy, program, agreement, trust, fund or other arrangement with, for or in respect of any current or former consultant, officer, director or employee, in each case other than as required by applicable law or pursuant to the terms of any of our employee benefit plans in effect on the date of the Merger Agreement, or, solely with respect to increases in wages or salaries of employees who are not officers or directors, in the ordinary course of business consistent with past practice;

· modify or amend in any material manner, terminate or waive or assign any material right under any of our material contracts or enter into any contract that would be material to us with a term longer than one year that cannot be terminated without payment of a material penalty and upon notice of 60 days or less, in each case other than in the ordinary course of business consistent with past practice;

· make any capital expenditures;

· voluntarily incur any material liability or obligation (whether absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice;

· sell, lease, license, transfer, exchange or swap, mortgage or otherwise pledge or encumber (including securitizations), or otherwise dispose of any material portion of our properties, assets or rights;

· enter into any new reinsurance transaction as assuming or ceding insurer (a) that does not contain market cancellation, termination and commutation provisions or (b) that adversely changes our or our subsidiaries’ reinsurance profile on a consolidated basis outside of the ordinary course of business consistent with past practice; and

26

· alter or amend in any material respect any existing underwriting, claims handling, loss control, investment, actuarial, financial reporting or accounting practices, guidelines or policies (including compliance policies) or any material assumption underlying an actuarial practice or policy, except as may be required by generally accepted accounting principles, applicable statutory accounting practices, any governmental authority or applicable law.

Although the Merger Agreement provides that we may obtain Employers’ prior written consent to otherwise prohibited actions, there can be no assurance that Employers will grant such consent.  The requirement that we comply with these provisions prior to the closing of the merger may hinder our ability to react to changes in market conditions or take advantage of business opportunities, which could have a material adverse effect on our financial condition and results of operations.

Risks Related to Our Business

We may not be able to collect on our reinsurance recoverables, which would adversely affect our financial condition.

We are subject to credit risk with respect to our reinsurers.  Reinsurance is an arrangement in which an insurance company, called the ceding company, transfers a portion of insurance risk under policies it has written to another insurance company, called the reinsurer, and pays the reinsurer a portion of the premiums relating to those policies.  Conversely, the reinsurer receives or assumes reinsurance from the ceding company.  Although we purchase reinsurance to manage our risk and exposure to losses, we continue to have direct obligations under the policies we write.  We remain liable to our policyholders, even if we are unable to recover what we believe we are entitled to receive under our reinsurance contracts.  Reinsurers might refuse or fail to pay losses that we cede to them, or they might delay payment.  In the case of long-term workers’ compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled.  Recent natural disasters, such as Hurricanes Katrina, Rita and Wilma, have caused unprecedented insured property losses, a significant portion of which will be borne by reinsurers.  If a reinsurer is active both in this market and in the workers’ compensation insurance market, its ability to perform its obligations in the latter market may be adversely affected by events unrelated to workers’ compensation insurance losses.

In 2001, we wrote off $10.8 million of uncollectible reinsurance receivables from Reliance Insurance Company and Legion Insurance Company.  In addition, the liquidator for Reliance has filed an action against us seeking recovery of approximately $2.3 million of reinsurance recoverables paid to us by Reliance as preferential payments in the ordinary course of business prior to the entry of an order to liquidate Reliance.  While we are vigorously defending such action, we cannot assure the outcome of such action.

At December 31, 2007, we carried a total of $67.8 million of reinsurance recoverables for paid and unpaid losses and LAE, representing 42.9% of our total stockholders’ equity as of that date.  Under Florida law, each of our insurance subsidiaries is required to maintain a ratio of 1.25 times premiums written to surplus of no greater than 10-to-1 for gross premiums written and no greater than 4-to-1 for net premiums written.  If all reinsurance recoverables became uncollectible, our surplus would decline by this amount, and we would not be in compliance with Florida’s statutory requirement at our current level of premiums written.  The Florida OIR would have the authority to place us into receivership, to suspend our insurance subsidiaries’ certificates of authority or to set limits on our maximum annual gross or net premiums written in all states.  In addition, we may be unable to comply with certain regulatory requirements, including solvency standards that may subject us to additional restrictions on our operations.  Of the $67.8 million in reinsurance recoverables, $1.5 million is the current recoverable on paid losses and $66.3 million is recoverable on unpaid losses and therefore not currently due.  The reinsurance recoverables on unpaid losses will become current as we pay the related claims.  If we are unable to collect a significant amount of our reinsurance recoverables, our financial condition and results of operations would be adversely affected.  See “Business—Recoverability of Reinsurance” and “—Regulation.”

Our largest recoverable from a single reinsurer as of December 31, 2007 was $32.2 million owed to us by Continental Casualty Company, a subsidiary of CNA Financial Corporation, representing 20.3% of our total stockholders’ equity as of that date.  Of the $32.2 million, $1.4 million was the current recoverable on paid losses.  The balance of $30.8 million is recoverable from Continental Casualty Company on losses that may be paid by us in the future and therefore is not currently due.

27

We also have a net outstanding and past due claims receivable under a claims administration contact in the amount of approximately $2.1 million under reinsurance agreements assumed from 1998 through 2000, with Security Insurance Company of Hartford, Fire and Casualty Insurance Company of Connecticut and Connecticut Indemnity Company.  These amounts have become past due because of Security Insurance Company’s contract disputes with its reinsurer.  If these amounts are ultimately determined to be uncollectible, we will write off that amount.

Our loss reserves are based on estimates and may be inadequate to cover our actual losses.

We must establish and maintain reserves for our estimated liability for losses and LAE.  We establish loss reserves in our financial statements that represent an estimate of amounts needed to pay and administer claims with respect to insured events that have occurred, including events that have not yet been reported to us.  Loss reserves are estimates of the ultimate cost of individual claims based on actuarial estimation techniques and are inherently uncertain.  Judgment is required in applying actuarial techniques to determine the relevance of historical payment and claim closure patterns under current facts and circumstances.  We review our established reserves each quarter.  We may adjust our reserves based on the results of these reviews and these adjustments could be significant.  If we change our estimates, these changes are reflected in our results of operations during the period in which they are made.

In states other than Florida, we have a shorter operating history and must rely on a combination of industry benchmarks, our specific experience in these states and our experience in Florida.  Operational changes in claims handling practices over the years may impact the interpretation of this historical data, which can also be impacted by external forces such as legislative changes, economic fluctuations and legal trends.  A key assumption in the estimation process for workers’ compensation reserves is severity trends, including the increasing costs of health care and the medical claims process.  If there were unfavorable changes in severity trends, our loss reserves might need to be increased, which would result in a charge to our earnings.

In 2007 and 2006, we experienced redundancies in our reserves for prior periods of $36.5 million and $14.2 million, respectively.  Our loss reserve estimates are made primarily by reviewing our current pricing and state specific loss reserving patterns from the past. We review our loss information and adjust our expected loss reserving patterns on a state specific basis three times a year. During 2006, we observed that enough loss reserving history had occurred to select loss development factors based entirely on state specific information. While the selected development factors changed significantly for some states, many of the changes were offsetting. The overall effect for the company was to slightly increase loss development factors affecting only the 2006 and subsequent accident years.  Our reserves may not develop as favorably in the future as they have in recent periods.

Workers’ compensation claims are often paid over a long period of time.  Estimating reserves for these claims may be more uncertain than estimating reserves for other lines of insurance with shorter or more definite periods between occurrence of the claim and final determination of the ultimate loss.  Accordingly, there is a greater risk that we may fail to accurately estimate the risks associated with the businesses that we insure and that our reserves may prove to be inadequate to cover our actual losses.

If we do not effectively price our insurance policies, our financial results will be adversely affected; we do not set prices for our policies in Florida and Wisconsin.

Our policy prices are established when coverage is initiated.  Our prices for insurance coverage are based on estimates of expected losses generated from the policies we underwrite.  As do most workers’ compensation insurance carriers, we analyze many factors when pricing a policy, including the policyholder’s prior loss history and industry, and the loss prevention orientation of the policyholder’s management.  Inaccurate information regarding a policyholder’s past claims experience puts us at risk for mispricing our policies.  When initiating coverage on a policyholder, we must rely on the claims information provided by the policyholder or previous carriers to properly estimate future claims expense.  If the claims information is not accurately stated, we may underprice our policy by using claims estimates that are too low.  As a result, our actual costs for providing insurance coverage to our policyholders may be significantly higher than our premiums.

We write insurance policies in two “administered pricing” states, Florida and Wisconsin.  In 2007, we wrote 28.6% of our direct written premiums in Florida and 14.2% in Wisconsin.  In administered pricing states, insurance rates are set by the state insurance regulators and are adjusted periodically.  Rate competition generally is not permitted in these states.

28

On October 29, 2007, NCCI submitted an amended filing calling for a statewide decrease of 18.4%, which was approved by the Florida OIR on October 31, 2007.  Significant declines in claim frequency and an improvement in loss development in Florida since the legislature enacted the 2003 reforms are the two main reasons for the proposed premium level decrease. The new rates apply to all new and renewal policies as of January 1, 2008.  The effect of the approved decrease cannot currently be ascertained.  If the 2008 premium decrease had been in effect in 2007, our direct premiums written would have declined by $11.6 million, our Florida net loss ratio would have increased by 4.8% and our company-wide net loss ratio would have increased by 1.6%.  If the approved rate decrease results in a material adverse effect on our profitability in Florida, we may elect to reduce the amount of premiums written there.  In states in which we operate, other than administered pricing states, should our competitors offer products at prices lower than we believe would be profitable, we may decline to compete at those lower prices and our premium levels could be reduced.

We operate in a highly competitive industry and may lack the financial resources to compete effectively.

The market for workers’ compensation insurance products is highly competitive.  Competition in our business is based on many factors, including premiums charged, policyholder dividends, services provided, financial ratings assigned by independent rating agencies, speed of claims payments, reputation, perceived financial strength and general experience.  In some cases, our competitors offer lower priced products than we do.  If our competitors offer more competitive premiums, dividends or payment plans, services or commissions to independent agencies, we could lose market share or have to reduce our premium rates, which could adversely affect our profitability.  Our competitors include insurance companies, professional employer organizations, third party administrators, self-insurance funds and state insurance pools.  Our main competitors in each of the 17 states on which we focus our operations vary from state to state but are usually those companies that offer a full range of services in underwriting, loss prevention and claims.  We compete on the services that we offer to our policyholders and on ease of doing business rather than solely on price.

In Florida, our main competitor is Summit Holdings Southeast, Inc./Bridgefield Employers Insurance Company, a full service company that provides comparable services to employers.  Another Florida competitor, FCCI Commercial Insurance Company, also provides these services to policyholders.  In Texas, our main competitor is Texas Mutual Insurance Company, a company also not rated by A.M. Best, which sells to all sized policyholders, including policyholders in the $10,000 to $100,000 range.  In Wisconsin, there are over 300 companies that write workers’ compensation insurance.  Our primary competitors there include Acuity, a Mutual Insurance Company, United Heartland., State Fund Mutual Insurance Company, West Bend Mutual Insurance Company, General Casualty Company of Wisconsin and Sentry Insurance Group, because they offer the same types of services that we offer.  In Indiana, our principal competition is from Accident Fund, Amerisure Insurance Company, Indiana Insurance Company and Selective Insurance Company.  In Tennessee, our main competition comes from FCCI Insurance Group, FFVA Mutual Insurance Company, Accident Fund, Bridgefield and national /regional multi-line carriers.  Many of our existing and potential competitors are significantly larger and possess greater financial, marketing and management resources than we do.

State insurance regulations require maintenance of minimum levels of surplus and of ratios of net premiums written to surplus.  Accordingly, competitors with more surplus than we possess have the potential to expand in our markets more quickly than we can.  Additionally, greater financial resources permit a carrier to gain market share through more competitive pricing, even if that pricing results in reduced underwriting margins or an underwriting loss.  Many of our competitors are multi-line carriers that can price the workers’ compensation insurance that they offer at a loss in order to obtain other lines of business at a profit.  If we are unable to compete effectively, our business and financial condition could be materially adversely affected.

29

If we do not maintain good relationships with independent insurance agencies, they may not sell our products in preference to those of our competitors and our revenues may decline.

We market and sell our insurance products solely through independent, non-exclusive insurance agencies.  These agencies are not obligated to promote our products and can and do sell our competitors’ products.  We must offer workers’ compensation insurance products that meet the requirements of these agencies and their customers.  We must provide competitive compensation to these agencies.  Our business model is based on an extensive network of smaller agencies distributed throughout the states in which we do business.  We need to maintain good relationships with the agencies with which we contract to sell our products.  If we do not, these agencies may sell our competitors’ products instead of ours or may direct less desirable risks to us, and our revenues or profitability may decline.  In addition, these agencies may find it easier to promote the broader range of programs of our competitors than to promote our niche selection of insurance products.  A loss of a number of our independent agencies or the failure of these agencies to successfully market our products may reduce our revenues and our results of operations if we are unable to replace them with agencies that produce comparable premiums.

Insurance ratings may become important to our agents and policyholders and an adverse rating could negatively impact our competitive position.

Insurance ratings may become an increasingly important factor in establishing our competitive position.  Rating agencies rate insurance companies based on their financial strength and their ability to pay claims, factors that are relevant to agents and policyholders.  The ratings assigned by nationally recognized, independent rating agencies, particularly A.M. Best, may become material to our ability to maintain and expand our business.  Ratings from A.M. Best and other rating agencies are used by some insurance buyers, agents and brokers as an indicator of financial strength and security.  These ratings are not intended to reflect the quality of the rated company for investment purposes and are not recommendations to buy or hold securities.  The financial strength ratings of A.M. Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time.  Other companies in our industry that have been rated and have had their rating downgraded have experienced negative effects.

Our insurance subsidiaries have never been rated by A.M. Best.  Since 1982, AmCOMP and its predecessors have been a mono-line workers’ compensation insurance carrier specializing in smaller sized policyholders, principally employers with premium between $10,000 and $100,000 per year.  Based on our extensive experience with independent agents, we believe employers in this size category are not as sensitive to A.M. Best ratings and they place more importance on a workers’ compensation carrier’s ability to assist in the prevention of injuries at their job site.  To date, we have not pursued a rating because we have been able to successfully increase premiums written without a rating in the 17 states in which focus our operations.  Some companies require that their workers’ compensation insurance carrier have a rating of at least “A-” from A.M. Best.  Most of these companies are larger than companies in our target market, and generally do not meet our underwriting and pricing objectives.  Historically, when we have sought to write policies for these companies, we have been successful in many cases in having this requirement waived.  However, we may not be able to obtain these waivers in the future and, should we decide to expand our target market, the absence of an A.M. Best rating or an unfavorable rating may limit our ability to profitably expand our business.

One of our insurance subsidiaries, AmCOMP Preferred, is rated “BBpi” by Standard & Poor’s on an unsolicited basis.  A rating of “BB” is the 5th highest of 8 rating levels used by Standard & Poor’s and indicates marginal financial security characteristics, although positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.  Our insurance subsidiaries, AmCOMP Preferred and AmCOMP Assurance, are also rated “BBBq” by Fitch Ratings on an unsolicited basis.  A rating of “BBBq” is the 4th highest of 7 Q-IFS rating levels used by Fitch and indicates that the insurer is viewed as possessing good capacity to meet policyholder and contract obligations based solely on their stand-alone publicly available financial statement information.  Risk factors are somewhat high, and the impact of any adverse business and economic factors is expected to be material, yet manageable.  These ratings are based solely on an analysis of published financial information and additional information in the public domain.  They are not based on meetings with our management, nor do they incorporate material, non-public information, and are therefore based on less comprehensive information than ratings without a “pi” or “q” subscript.

The absence of a rating from A.M. Best and the current ratings by Standard & Poor’s and Fitch may adversely affect our marketing efforts, cost or availability of reinsurance and financial performance.  Should our insurance subsidiaries apply for a rating or should A.M. Best choose to rate our insurance subsidiaries on an unsolicited basis, the ratings they receive may not be favorable, which could adversely affect our marketing efforts, cost or availability of reinsurance and financial performance.  Additionally, a downgrade in or withdrawal of any future A.M. Best or other rating agency rating could cause a reduction in the number of policies we write and could have a material adverse effect on our results of operations and our financial position.

30

Our geographic concentration ties our performance to business, economic and regulatory conditions in certain states.

Our business is currently concentrated in Florida (28.6% of 2007 direct premiums written), Wisconsin (14.2% of 2007 direct premiums written), Texas (12.5% of 2007 direct premiums written), Indiana (8.6% of 2007 direct premiums written), Tennessee (6.8% of 2007 direct premiums written) and Georgia (6.1% of 2007 direct premiums written).  Unfavorable business, economic or regulatory conditions in these states could impact our business disproportionately in comparison to insurers with less geographic concentration.

In Florida, the state in which we write the most premium, and in Wisconsin, insurance regulators set the premium rates we may charge.  The Florida and Wisconsin insurance regulators may set rates below those that we require to maintain profitability.  For example, in October 2007, the Florida OIR approved an overall average 18.4% decrease in premium rates for all workers’ compensation insurance policies written by Florida licensed insurers in 2008.  The effect of the approved decrease cannot be ascertained at this time, because of anticipated changes in the number of insurers that will operate in Florida and the amount of insurance that they seek to write, the use of dividend plans and consent to rate policies and possible additional realization of cost savings resulting from reforms enacted in 2003.

In addition, Florida is exposed to severe natural perils, such as hurricanes.  As our business is concentrated in this manner, we may be exposed to economic and regulatory risks or risks from natural perils that are greater than the risks we would face if our business were spread more evenly by state.  To date we have not been adversely affected by natural perils.  However, were Florida to experience a natural peril of the magnitude of Hurricane Katrina, the result could be disruption of the entire local economy, the loss of jobs and a concomitant reduction in the opportunity to place workers’ compensation insurance.

Our financial condition may be adversely affected if we are unable to realize our investment objectives.

Investment income is an important component of our revenues and net income.  The ability to achieve our investment objectives is affected by factors that are beyond our control.  For example, United States participation in hostilities with other countries and large-scale acts of terrorism may adversely affect the economy generally, and our investment income could decrease due to decreases in the yield on our investments.  Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions.  These and other factors affect the capital markets and, consequently, the value of the securities we own.  Interest rates have remained low in the past several years.  The outlook for our investment income is dependent on the future direction of interest rates, maturity schedules and the amount of cash flows from operations that is available for investment.  The fair values of fixed maturity investments that are “available-for-sale” fluctuate with changes in interest rates and cause fluctuations in our balance sheet.  Our stockholders’ equity will continue to fluctuate with any future changes in interest rates.  Any significant decline in our investment income as a result of falling interest rates or general market conditions would have an adverse effect on our net income and, as a result, on our stockholders’ equity and our policyholders’ surplus.

Our business is largely dependent on the efforts of our management because of its industry expertise, knowledge of our markets and relationships with the independent agencies that sell our products.

Our success will depend in substantial part upon our ability to attract and retain qualified executive officers, experienced underwriting personnel and other skilled employees who are knowledgeable about our business.  The current success of our business is dependent in significant part on the efforts of Fred R. Lowe, our president and chief executive officer, Debra Cerre-Ruedisili, our executive vice president and chief operating officer, and Kumar Gursahaney, our senior vice president, chief financial officer and treasurer.  Many of our regional and local officers are also critical to our operations because of their industry expertise, knowledge of our markets and relationships with the independent agencies who sell our products.  We carry key person life insurance only on Ms. Cerre-Ruedisili.  If we were to lose the services of members of our management team or key regional or local officers, we may be unable to find replacements satisfactory to us and our business.  As a result, our operations may be disrupted and our financial performance may be adversely affected.

31

We may require additional capital in the future, which may not be available or may be available only on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses.  To the extent that the funds generated by operations are insufficient to fund future operating requirements and/or cover losses, we may need to raise additional funds through financings or curtail our growth.  We believe that the cash generated from operations, together with our anticipated retained earnings, will support our operations for at least the next 18 to 24 months without the need to raise additional capital.  However, we cannot provide any assurance in that regard, because many factors will affect the amount and timing of our capital needs, including our growth and profitability, our claims experience, and the availability of reinsurance, as well as possible market disruptions and other unforeseeable developments.  If we have to raise additional capital, equity or debt financing may not be available on terms that are favorable to us.  In the case of equity financings, dilution to our stockholders could result.  In any case, such securities may have rights, preferences and privileges that are senior to those of the shares currently outstanding.  In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business.  If we cannot obtain adequate capital on favorable terms or at all, we may not have sufficient funds to implement our future growth or operating plans and our business, financial condition or results of operations could be materially adversely affected.

The insurance business is subject to extensive regulation that limits the way we can operate our business.

We are subject to extensive regulation by the Florida OIR and the insurance regulatory agencies in each state in which our insurance subsidiaries are licensed.  These state agencies have broad regulatory powers designed primarily to protect policyholders and their employees, not the stockholders of AmCOMP.  Regulations vary from state to state, but typically address or include:

· standards of solvency, including risk-based capital measurements;

· restrictions on the nature, quality and concentration of investments;

· restrictions on the types of terms that we can include in the insurance policies we offer;

· mandates that may affect wage replacement and medical care benefits paid under the workers’ compensation system;

· procedures for adjusting claims, which can affect the ultimate amount for which a claim is settled;

· restrictions on the way rates are developed and premiums are determined;

· the manner in which general agencies may be appointed;

· required methods of accounting for regulatory reporting;

· establishment of reserves for unearned premiums, losses and other purposes;

· limitations on our ability to transact business with affiliates;

· mergers, acquisitions and divestitures involving our insurance subsidiaries;

· licensing requirements and approvals that affect our ability to do business;

· compliance with medical privacy laws;

· potential assessments for the settlement of covered claims under insurance policies issued by impaired, insolvent or failed insurance companies; and

· the amount of dividends that our insurance subsidiaries may pay to us, the parent holding company.

32

Stock insurance companies are subject to Florida statutes related to excess profits for workers’ compensation insurance companies.  Florida excessive profits are calculated based upon a complex statutory formula which is applied over rolling three year periods.  Companies are required to file annual excess profits forms, and they are required to return so-called “Florida excessive profits” to policyholders in the form of a cash refund or credit toward the future purchase of insurance.  To date, we have not been required to return Florida excess profits.  As of December 31, 2007, $0.5 million was accrued for Florida excessive profits expected to be paid in the future.

Regulatory authorities have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations.  We may be unable to maintain all required approvals or comply fully with the wide variety of applicable laws and regulations, which are continually undergoing revision, or the relevant authority’s interpretation of such laws and regulations.  In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry.  These practices may turn out to be different from the interpretations of regulatory authorities.  This extensive regulation of our business may affect the cost of our products and may limit our ability to obtain rate increases or to take other actions that we might pursue to increase our profitability.  Further, changes in the level of regulation of the insurance industry or changes in laws or regulations or interpretations by regulatory authorities could impact our operations and require us to bear additional costs of compliance.

The NAIC has adopted a system to test the adequacy of statutory capital, known as “risk-based capital.”  This system establishes the minimum amount of capital and surplus calculated in accordance with statutory accounting principles, necessary for an insurance company to support its overall business operations.  It identifies insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net premiums written.  Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation.  Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiaries to maintain regulatory authority to conduct our business.  See “Business—Regulation.”

For 2005, the Illinois insurance regulatory agency imposed a cap of $9.0 million on the annual premiums we could write because AmCOMP Preferred was not currently a licensed carrier in Illinois.  This limit superseded a previous $2.5 million limit.  The Illinois insurance regulatory agency considered our aggregation of the financial statements of AmCOMP Assurance, a licensed carrier in Illinois, and AmCOMP Preferred to be a reinsurance transaction with an unlicensed carrier and has required a deposit from us for premiums written in that state.  In April 2006, Illinois lifted the limitation on annual premium writings, retroactive to January 1, 2006.  In North Carolina, we were subject to a $12.0 million cap on written premiums during the 2002-2004 periods.  Effective July 6, 2005, the cap was removed.

Assessments and other surcharges by guaranty funds and second injury funds and other mandatory pooling arrangements may reduce our profitability.

Most states have guaranty fund laws under which insurers doing business in the state are required to fund policyholder liabilities of insolvent insurance companies.  Generally, assessments are levied by guaranty associations within the state, up to prescribed limits, on all insurers doing business in that state on the basis of the proportionate share of the premiums written by insurers doing business in that state in the lines of business in which the impaired, insolvent or failed insurer is engaged.  Maximum contributions required by law in any one state in which we offer insurance vary between 0.2% and 2.0% of direct premiums written.  We recorded an estimate of $3.5 million, and $5.7 million for our expected liability for guaranty fund assessments at December 31, 2007, and 2006, respectively.  These liabilities were offset by related assets for expected recoveries in the form of premium tax credits in the amount of $1.5 million, and $2.4 million at December 31, 2007, and 2006, respectively.  The assessments levied on us may increase as we increase our premiums written.

Many states also have laws that established second injury funds to reimburse employers and insurance carriers for workers’ compensation benefits paid to employees who are injured and whose disability is increased by a prior work-related injury.  The source of these funds is an assessment charged to workers’ compensation insurance carriers doing business in such states.  Assessments are based on paid losses or premium surcharge mechanisms.  Several of the states in which we operate maintain second injury funds with material assessments.  Our total liability for second injury fund assessments was $6.7 million in 2007 and $8.3 million in 2006.  Our collections from these funds were $2.3 million in 2007 and $1.4 million in 2006.  There is significant uncertainty that these funds will have the money required to reimburse us for our claims.  For example, Florida’s fund currently has significant unfunded liabilities and no reserves exist to satisfy future claims.  Consequently, we have recorded no asset for future collections.  No recoveries are available from Florida’s fund for claims arising from accidents occurring on or after January 1, 1998.  Beginning in the third quarter of 2005, the second injury fund assessment in South Carolina was doubled to 36.8% on losses.  A pre-tax charge of $3.3 million was recorded in the third quarter of 2005 to reflect the impact of this rate change.  During 2006, the second injury fund assessment rate in South Carolina decreased to 24.5% on losses.  The impact of this rate change was to increase 2006 pre-tax income by $2.8 million.  During 2007, the second injury fund assessment rate in South Carolina decreased to 13.9% on losses.  The impact of this rate change was to increase 2007 pre-tax income by $1.8 million.  This is just one example of the impact of assessment rate changes on pre-tax income.  Future rate increases or decreases related to material assessments will lead to volatility in earnings in the period in which the rate change occurs.

33

As a condition to the ability to conduct business in some states, insurance companies are required to participate in mandatory workers’ compensation shared market mechanisms, or pooling arrangements.  These arrangements provide insurance to companies that are otherwise unable to obtain coverage due, for example, to their prior loss experience.  Our estimated liability is based upon currently available information and could change based on additional information or reinterpretations of existing information concerning the actions of the pools.  Although we price our products to account for the obligations that we may have under these pooling arrangements, we may not be successful in estimating our liability for these obligations.  Accordingly, our prices may not fully account for our liabilities under pooling arrangements, which may cause a decrease in our profits.  We cannot predict the financial impact of our participation in any shared market or pooling mechanism that may be implemented in the future.  As we write policies in new states that have pooling arrangements, we will be required to participate in additional pooling arrangements.  Further, the insolvency of other insurers in these pooling arrangements would likely increase the liability for other members in the pool.  The effect of these assessments and mandatory shared market mechanisms or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

We rely on our information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business.

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.  These systems also enable us to perform actuarial and other modeling functions necessary for underwriting and rate development.  The failure of these systems, or the termination of a third-party software license upon which any of these systems is based, could interrupt our operations or materially impact our ability to evaluate and write new business.  As our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.  If sustained or repeated, a system failure or service denial could result in a deterioration of our ability to write and process new and renewal business and provide customer service or compromise our ability to pay claims in a timely manner.  This could result in a material adverse effect on our business.

As we only offer workers’ compensation insurance, negative developments in this industry would adversely affect our business.

We only offer workers’ compensation insurance and have no plans to offer any other type of insurance.  As a result of this concentration, negative developments in the economic, competitive or regulatory conditions affecting the workers’ compensation insurance industry could have a material adverse effect on our results of operations and financial condition.  A significant decrease in pricing due to increased competition or regulatory action, adverse court decisions interpreting states’ workers’ compensation laws and newly enacted legislation could negatively impact our business.

On October 29, 2007, NCCI submitted an amended filing calling for a statewide decrease of 18.4%, which was approved by the Florida OIR on October 31, 2007.  The new rates apply to all new and renewal policies as of January 1, 2008.  The effect of the approved decrease cannot currently be ascertained.  If the 2008 premium decrease had been in effect in 2007, our direct premiums written would have declined by $11.6 million, our Florida net loss ratio would have increased by 4.8% and our company-wide net loss ratio would have increased by 1.6%.  If the approved rate decrease results in a material adverse effect on our profitability in Florida, we may elect to reduce the amount of premiums written there.  In states in which we operate, other than administered pricing states, should our competitors offer products at prices lower than we believe would be profitable, we may decline to compete at those lower prices and our premium levels could be reduced.  Many of our competitors are multi-line carriers that can price the workers’ compensation insurance that they offer at a loss in order to obtain other lines of business at a profit.  As we offer only workers’ compensation insurance, we must make a profit on this business and will not lower our price to obtain business below a price that we believe will be profitable for us.

34

Adverse economic conditions for the construction industry across the states in which we do business could also adversely affect our business, as approximately 35% of our business in 2007 came from underwriting workers’ compensation insurance for the construction industry.  This industry is more vulnerable than most due to downturns in the local economy, including those in the housing market, and natural disasters.  We also derived approximately 30% of our business from the goods and services industry and approximately 20% of our business from the manufacturing industry in 2007.  Negative developments in these industries would have a greater effect on us, compared to more diversified insurers that also sell other types of insurance products.  See also “—Our geographic concentration ties our performance to business, economic and regulatory conditions in certain states.”

If we are unable to obtain reinsurance, our ability to write new policies and to renew existing policies could be adversely affected.

Like other insurers, we manage risk, in part, by buying reinsurance.  We currently purchase excess of loss reinsurance.  Under excess of loss reinsurance, a reinsurer reimburses the ceding company for losses and loss expenses over a specified dollar amount up to an agreed limit per occurrence.  For 2008, 2007 and 2006, our excess of loss reinsurers assumed liability on each loss occurrence up to $30.0 million, subject to our retention of the first $2.0 million.

We review and renegotiate our reinsurance protection each year.  The availability, amount and cost of reinsurance are subject to market conditions and to our experience with insured losses.  We cannot be certain that our reinsurance agreements will be renewed or replaced prior to their expiration upon terms satisfactory to us.  If we are unable to renew or replace our reinsurance agreements upon terms satisfactory to us, our net liability on individual risks would increase and we would have greater exposure to catastrophic losses.  If this were to occur, our underwriting results would be subject to greater variability and our underwriting capacity would be reduced.  These consequences could adversely affect our financial performance.

We have reduced our use of excess of loss reinsurance.  The greater risk we have retained could result in losses.

For policies effective January 1, 2005 or later, we maintained excess of loss reinsurance coverage for the layer of loss occurrences in excess of $2.0 million.  Lower layers of excess of loss reinsurance were used in the past primarily to reduce the volatility of our financial results caused by large loss occurrences.  We have continued to purchase excess of loss reinsurance for losses above $2.0 million, up to $20.0 million in 2005, and $30.0 million in 2006, 2007, and 2008.  As a result of the reduction of excess of loss reinsurance purchased, we have reduced our overall reinsurance costs, but will also retain more losses from large loss occurrences.

We have eliminated our use of quota share reinsurance.  The greater risk we have retained could result in losses.

We terminated our quota share reinsurance effective June 30, 2004 on new and renewal business.  Effective July 1, 2005, we terminated the quota share reinsurance we maintained on a run-off basis for policies written prior to June 30, 2004.  Quota share reinsurance was used in the past primarily to increase our underwriting capacity and to reduce our exposure to losses.  Quota share reinsurance refers to a form of reinsurance under which the reinsurer participates in a specified percentage of the premiums and losses on all reinsured policies in a given class of business.  As a result of the termination of our quota share reinsurance, we retain and earn more of the premiums we write, but also retain more of the related losses.  Our increased exposure to potential losses could have a material adverse effect on our business, financial condition and results of operations.

Litigation against our insurance subsidiaries could have an adverse effect on our business, results of operations and/or financial condition.

Our insurance subsidiaries have been named as defendants in various legal actions in the course of their insurance operations.  Our subsidiaries have responded to the lawsuits, and we believe that there are meritorious defenses and intend to vigorously contest these claims.  Adverse judgments in multiple lawsuits could require us to pay significant damage amounts in the aggregate or to change aspects of our operations, which could have a material adverse effect on our financial results.

35

Our status as an insurance holding company with no direct operations could adversely affect our ability to meet our obligations and pay dividends in the future.

AmCOMP is a holding company that transacts substantially all of its business through operating subsidiaries.  Our primary assets are the stock of our operating subsidiaries.  Our ability to meet obligations on outstanding debt, to pay stockholder dividends and to make other payments depends on the surplus and earnings of our subsidiaries and their ability to pay dividends or to advance or repay funds.  Payments of dividends and advances and repayments by our insurance subsidiaries are restricted by state insurance laws and could be subject to contractual restrictions in the future, including those imposed by indebtedness we may incur in the future.  See “Business—Regulation—Financial, Dividend and Investment Restrictions.”  In addition, the payment of stockholder dividends by us is within the discretion of our board of directors and will depend on numerous factors, including our financial condition, our capital requirements and other factors that our board of directors considers relevant.  Currently, we do not intend to pay dividends on our capital stock.

Risks Related to Our Industry

Our results of operations and revenues may fluctuate as a result of many factors, including cyclical changes in the insurance industry, which may cause the price of our common stock to be volatile.

The results of operations of companies in the insurance industry historically have been subject to significant fluctuations and uncertainties.  Our profitability can be affected significantly by:

· competition;

· rising levels of loss costs that we cannot anticipate at the time we price our products;

· volatile and unpredictable developments, including man-made or natural catastrophes or terrorist attacks;

· changes in the level of reinsurance capacity and capital capacity;

· changes in the amount of loss reserves resulting from new types of claims and new or changing judicial interpretations relating to the scope of insurers’ liabilities;

· changes in the regulatory or legal framework governing the worker’s compensation system;

· premium rate levels fixed by regulators; and

· fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested assets and may impact the ultimate payout of losses.

The supply of insurance is related to prevailing prices, the level of insured losses and the level of industry surplus which, in turn, may fluctuate in response to changes in rates of return on investments being earned in the insurance industry.  As a result, the insurance business historically has been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity as well as periods when shortages of capacity permitted favorable premium levels.  During 1998, 1999 and 2000, the workers’ compensation insurance industry experienced substantial pricing competition, and this pricing competition greatly affected our ability to increase premium rates in other than administered pricing states.  Beginning in 2001, we witnessed a decrease in pricing competition in the industry, which enabled us to raise our rates.  The pricing competition returned during 2006 and 2007, and this has again affected our ability to increase rates.  The supply of insurance may increase, either by capital provided by new entrants or by the commitment of additional capital by existing insurers, which may cause prices to continue to decrease or remain flat.  For example, in October 2007, the Florida OIR approved an overall average 18.4% decrease in premium rates for all workers’ compensation insurance policies written by all Florida licensed insurance carriers in 2008.  This reduction may have a material adverse effect on our profitability in Florida next year and may result in a decrease in the number of policies we issue in Florida in 2008.  Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer policies written.  In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance business significantly, and we expect to experience the effects of such cyclicality.  This cyclicality may cause the price of our securities to be volatile.

36

Investigations into insurance and reinsurance practices could cause volatility in our stock and adversely affect our business.

We expect new regulatory requirements related to finite reinsurance to be imposed on the insurance industry.  The NAIC has requested its Property and Casualty Reinsurance Study Group of the Reinsurance Task Force to formally study statutory financial accounting issues related to finite reinsurance.  In an effort to eliminate the abuse of finite reinsurance contracts, changes have been proposed to filing forms that would require insurers to make specific disclosures related to finite reinsurance on their financial statement filings.  Additionally, the Florida OIR has developed and continues to make additional new regulations that would require domestic insurers to make additional disclosures and attestations relating to their finite and other risk limiting reinsurance agreements and comply with new disclosure requirements.  Increased regulation of finite reinsurance may affect the availability or cost of reinsurance in ways that are difficult to foresee at present, and could have a material adverse effect on our business.

Investigations of broker placement and compensation practices initiated by the attorney general’s office of certain states, including the State of New York, together with class action lawsuits initiated against such broker entities and certain insurance companies, have challenged the legality of certain activities conducted by these brokers and companies.  The investigations and suits challenge, among other things, the appropriateness of setting fees paid to brokers based on the volume of business placed by a broker with a particular insurer or reinsurer; the payment of contingent fees to brokers by insurers or reinsurers and the alleged conflict of interest arising from such fee arrangements; the nondisclosure by brokers to their clients of contingent fees paid to them by insurers and reinsurers; bid rigging, and tying the receipt of direct insurance to placing reinsurance through the same broker. AmCOMP distributes its products through independent agents who are appointed by and represent the Company and does not distribute through brokers.  In some cases, we do pay contingent commissions to our agents.  To our knowledge, these investigations have been focused on broker practices.  However, these investigations and lawsuits may change industry practices in unforeseeable ways and those changes could adversely affect the competitive environment in our business.

Acts of terrorism could negatively affect our business and financial condition, and the availability of federal reimbursement for acts of terrorism could expire or be curtailed.

We are required to provide workers’ compensation benefits for losses resulting from certain acts of terrorism.  The impact on us of any terrorist act will depend upon the nature, extent, location and timing of such an act, and could be material.  The extent of losses from an act of terrorism is a function of both the number of workers employed by our policyholders in the area affected by the event and the severity of the event.

The 2002 Act was enacted in response to the events of September 11, 2001.  The program initiated by the 2002 Act applies to losses arising out of acts of terrorism that are certified as such by the Secretary of the Treasury.  In order to be certified as an act of terrorism under the 2002 Act, losses incurred as a result of the act are required to exceed $5.0 million, and the act may not be an act of domestic terrorism.  In addition, such losses must arise out of an act of terrorism committed in the course of a war declared by the United States Congress, except with respect to workers’ compensation coverage.  Under the 2002 Act, Federal reimbursement is subject to an annual aggregate limit of $100.0 billion.  Each insurer is responsible for a deductible based on a percentage of its direct premiums earned in the previous calendar year. For losses in excess of the deductible, the Federal government will reimburse 90% of the insurer’s loss, up to the insurer’s proportionate share of the $100.0 billion.  Insurers will not be liable for payments for any portion of losses in excess of the $100.0 billion annual limit.

The 2005 Act extended the 2002 Act for an additional two years to December 31, 2007.  While the underlying structure of the 2002 Act was left intact, the 2005 Act made some adjustments, including increasing the current insurer deductible to 20% of direct premiums earned in 2007. Our 2007 deductible is equal to 20% of 2006 direct premiums earned, or approximately $54 million.   Commencing on January 1, 2007, for losses in excess of the deductible, Federal reimbursement decreased to 85% of the insurer’s loss.  After January 1, 2007, Federal reinsurance will only be available if industry aggregate insured losses from a certified act exceed $100.0 million.  Insurers must still provide terrorism insurance for events causing losses up to the above amount, even though Federal reinsurance is only available for events causing losses exceeding that amount.  The 2007 Act further extended the 2005 Act for seven additional years to December 31, 2014.

Under the 2007 Act, insurers must offer coverage for losses due to terrorist acts in all of their commercial property and casualty insurance policies.  The 2007 Act’s definition of property and casualty insurance includes workers’ compensation insurance.  Moreover, the workers’ compensation laws of the various states generally do not permit the exclusion of coverage for losses arising from terrorist acts or from nuclear, biological and chemical attacks.  In addition, we are not able to limit our loss arising from any one catastrophe or any one claimant.  Our reinsurance policies exclude coverage for losses arising out of terrorism and nuclear, biological and chemical attacks.  Therefore, acts of terrorism could adversely affect our business and financial condition.  The failure to extend the 2007 Act or its extension on terms less favorable to insurers could adversely affect our ability to obtain reinsurance on favorable terms and could influence our underwriting strategy and how we conduct our business in the future.

37

Risks Related to our Common Stock

Your ability to influence corporate decisions may be limited because our principal stockholders beneficially own approximately 20% of our common stock.

Our principal stockholders, including senior management, directors and their affiliates, beneficially own, in the aggregate, approximately 20% of our common stock.  These stockholders may be able to determine who will be elected to our board of directors and to control substantially all matters requiring approval by our stockholders, including mergers, sales of assets and approval of other significant corporate transactions, in a manner with which you may not agree or that may not be in your best interest.  This concentration of stock ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders.

The price of our common stock may decrease, and you may lose all or a part of your investment.

The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are beyond our control, including:

· variations in our quarterly operating results;

· changes in operating and stock performance of similar companies;

· changes in earnings estimates and market price targets by securities analysts;

· investor perception of the workers’ compensation insurance industry and of our company;

· results of operations that vary from those expected by securities and other market analysts and investors;

· future sales of our securities;

· litigation developments;

· regulatory actions;

· departures of key personnel; and

· general market conditions, including market volatility.

A significant decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation.

In addition, the stock market in recent years has experienced substantial price and volume fluctuations that sometimes have been unrelated or disproportionate to the operating performance of companies whose shares are publicly traded.  As a result, the trading price of shares of our common stock may be below your purchase price and you may be unable to sell your shares of common stock at or above the price that you paid, and you may lose some or all of your investment.

38

Future sales of our common stock, or the possibility or perception that such future sales might occur, may depress its price.

The market price of our common stock could decline as a result of sales of substantial numbers of shares in the public market, or the perception that these sales could occur.  This may make it more difficult for you to sell your shares at a time and at a price that you deem appropriate.  In addition, these factors could make it more difficult for us to raise funds through future offerings of common stock.  There were 15,290,181 shares of our common stock outstanding as of February 28, 2008.  All of these shares are freely transferable without restriction or further registration under the Securities Act of 1933, as amended, except for the 2,677,239 shares held by our senior management, directors and their affiliates.

 We may also acquire other companies or assets or finance strategic alliances by issuing equity, which may result in additional dilution to you.

Florida and other applicable state insurance laws, certain provisions of our charter documents and Delaware law could prevent or delay a change of control of AmCOMP and could also limit the market price of our common stock.

Florida insurance law prohibits any person from acquiring 10% or more of the outstanding voting securities of us or any of our insurance subsidiaries without the prior approval of the Florida OIR.  Any person who acquires between 5% and 10% of the outstanding securities of us or any of our subsidiaries must file a disclaimer of control with the Florida OIR, provided that the acquiror is not going to participate in management or control.  If the acquirer is planning on participating in management or control, they must obtain prior approval from the Florida OIR for any acquisition exceeding 5%.Any person wishing to acquire control of us or of any substantial portion of our outstanding shares would first be required to obtain the approval of the Florida OIR.  In connection with the proposed merger, Employers has filed a Form A with the Florida OIR requesting the required approvals, which request is currently pending.

In addition, many state insurance laws require prior notification to the state insurance department of a change of control of a non-domiciliary insurance company licensed to transact insurance in that state.  While these pre-notification statutes do not authorize the state insurance departments to disapprove the change of control, they authorize regulatory action (including a possible revocation of our authority to do business) in the affected state if particular conditions exist, such as undue market concentration.  Any future transactions that would constitute a change of control of us may require prior notification in the states that have pre-acquisition notification laws.

Provisions of our certificate of incorporation and bylaws could discourage, delay or prevent a merger, acquisition or other change in control of AmCOMP, even if such a change in control would be beneficial to our stockholders.  These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors and take other corporate actions.  These provisions include:

· authorizing our board of directors to issue up to 5,000,000 shares of preferred stock with rights senior to those of our common stock without further stockholder approval;

· limiting the ability of our stockholders to call special meetings of stockholders;

· advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at the stockholder meetings; and

· prohibiting stockholder action by written consent, thereby limiting stockholder action to that taken at a meeting of our stockholders.

Section 203 of the Delaware General Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with a person who acquires at least 15% of its voting stock for a period of three years after the date such person acquired such voting stock, unless the business combination is approved in a prescribed manner.  These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation.  These provisions may apply even if some stockholders may consider the transaction beneficial to them.

These provisions could limit the price that investors are willing to pay in the future for shares of our common stock.  These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

39

We do not anticipate paying dividends on our capital stock in the foreseeable future.

We currently intend to retain our future earnings, if any, to fund the development and growth of our business.  The amount of cash we may have available is in part limited by dividend restrictions imposed on our insurance subsidiaries by state insurance laws and regulations, which prescribe the amount of dividends our insurance subsidiaries can pay us.  As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

We are exposed to risks relating to evaluations of our internal controls over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.

As a public company, we were required to comply with Section 404 of the Sarbanes-Oxley Act by no later than December 31, 2007.  When completing this process annually, we may identify control deficiencies of varying degrees of severity that remain unremediated.  As a public company, we are required to report, among other things, control deficiencies that constitute a “material weakness.”  A “material weakness” is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  If we fail to implement the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory agencies such as the SEC.  In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our financial statements and the trading price of our common stock may decline.  If we fail to remedy any material weakness, our financial statements may be inaccurate, our access to the capital markets may be restricted and the trading price of our common stock may decline.

Our management and independent registered public accounting firm have in the past determined that there are material weaknesses in our internal controls over financial reporting.  If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results.

During the preparation of the financial statements for the quarter ended September 30, 2006, our independent registered public accounting firm and management identified certain reportable conditions that constitute material weaknesses in the internal controls over financial reporting.  Specifically, our independent auditors noted that an error was made in the presentation of our book overdrafts.  The error was the result of a book overdraft position being presented as a reduction of “cash and cash equivalents” rather than as an “other liabilities” and required that certain previously filed financial statements be restated.

Our audit committee and management team agreed with the matters identified as material weaknesses.  In response, we initiated corrective actions to address these control deficiencies.  If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Our principal executive offices are located in leased premises of approximately 33,758 square feet in North Palm Beach, Florida.  We also lease a total of approximately 69,264 square feet of office space in 9 states.  We believe that there is sufficient office space available at favorable leasing terms both to replace existing office space and to satisfy any additional needs we may have as a result of future expansion.

Item 3.  Legal Proceedings

We are periodically a party to routine litigation incidental to our business.  We do not believe that we are a party to any pending legal proceeding that is likely to have a material adverse effect on our business, financial condition or results of operations.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2007.

40

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and Holders

The Company’s common stock is traded on the Nasdaq National Market System under the ticker symbol “AMCP”.  On February 9, 2006, the SEC declared the Company’s registration statement effective and the Company’s common stock began trading on February 10, 2006.  The following table shows the high and low per share closing sale prices of our common stock for the period indicated, as reported on The Nasdaq National Market.  These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

	2007 Price Range				2006 Price Range
	High		Low		High		Low
First Quarter (1)	$	11.85	$	9.66	$	9.65	$	8.80
Second Quarter	$	10.92	$	8.75	$	10.54	$	9.50
Third Quarter	$	10.04	$	7.32	$	10.34	$	8.75
Fourth Quarter	$	10.48	$	8.91	$	11.22	$	9.15

(1) The stock prices for the first quarter 2006 reflect the period from the Company’s initial public offering of February 10, 2006 through the end of the quarter, March 31, 2006.

As of February 28, 2008, there were 15,290,181 shares of common stock issued and outstanding held by 45 shareholders of record, although the number of beneficial shareholders was much larger.

Dividend Policy

We have never declared or paid cash dividends on our common stock.  We currently intend to retain all of our earnings for the foreseeable future to finance the operation and expansion of our business.  We are limited in our ability to pay dividends by the amount of cash we have available.  The amount of cash we have available is, in part, limited by dividend restrictions imposed on our insurance subsidiaries by state insurance statutes that prescribe the amount of dividends our insurance subsidiaries can pay us.  Our future dividend policy will be at the discretion of our board of directors and will also depend on the requirements of any future financing arrangements to which we may be a party and other factors considered relevant by our board of directors.

Unregistered Sales of Equity Securities

There were no unregistered sales of equity securities in 2007.

Purchase of Equity Securities

On August 28, 2007, the Company announced a share repurchase program to acquire up to 1.5 million shares of the Company’s common stock. The program was intended to be implemented through purchases made from time to time in either the open market or through private transactions, in accordance with the SEC’s requirements.  Repurchases under this authorization commenced in August 2007, and were suspended in December 2007, in connection with the potential acquisition of the Company by Employers.  As of February 28, 2008, 559,954 shares have been repurchased pursuant to this authorization at an average cost of $9.76 per share.

41

Details of the repurchase activity under the repurchase plan are a follows:

2007:	Total Number of Shares Repurchased		Average Price Paid Per Share		Cumulative Number of Shares Purchased as Part of a Publicly Announced Plan		Maximum Number of Shares that May Yet be Purchased Under the Plan
Month #1 (August 28, 2007 - August 31, 2007)		16,800	$	9.45		16,800		1,483,200
Month #2 (September 1, 2007 - September 30, 2007)		217,100	$	9.52		233,900		1,266,100
Month #3 (October 1, 2007 - October 31, 2007)		125,254	$	9.89		359,154		1,140,846
Month #4 (November 1, 2007 - November 30, 2007)		183,000	$	9.97		542,154		957,846
Month #5 (December 1, 2007 - December 6, 2007)		17,800	$	9.86		559,954		940,046
Total		559,954	$	9.76		559,954		940,046

Securities Authorized for Issuance Under Equity Compensation Plans

The following table gives information about stock option awards under the Company’s equity compensation plans as of December 31, 2007. The plans are discussed further in Note 15 to the Company’s Consolidated Financial Statements included herein.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	906,422	$ 9.43	174,892
Equity compensation plans not approved by security holders	–	–	–
Total	906,422	$ 9.43	174,892

42

Item 6.  Selected Financial Data

You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this report.

The selected consolidated statement of operations data for the years ended December 31, 2007, 2006 and 2005 and the selected consolidated balance sheet data as of December 31, 2007 and 2006 are derived from our audited consolidated financial statements included elsewhere in this report.  The selected consolidated statement of operations data for the years ended December 31, 2004 and 2003 and the selected consolidated balance sheet data as of December 31, 2005, 2004, 2003 are derived from our audited consolidated financial statements not included in this report.  These financial statements have been prepared in accordance with GAAP.  Our historical results may not be indicative of the operating results to be expected in any future period.

	Year Ended December 31,
	2007			2006			2005			2004			2003
	(Dollars and shares in thousands, except per-share data)
Statement of Operations Data:
Revenues:
Net premiums earned	$	229,349		$	266,456		$	256,603		$	181,186		$	164,287
Net investment income		20,102			17,461			10,798			6,077			4,803
Net realized investment (loss) gain		(473	)		(307	)		(385	)		982			2,644
Other income (loss)		127			333			285			332			(2,464	)(1)
Total revenue	$	249,105		$	283,943		$	267,301		$	188,577		$	169,270
Expenses:
Losses and loss adjustment expenses(2)	$	126,562		$	163,670		$	143,663		$	119,121		$	109,518
Policy acquisition expenses		41,180			49,547	(3)		51,508	(4)		19,499			21,735
Underwriting and other expenses		36,014			32,175			34,447			32,280			30,244
Dividends to policyholders		11,334			9,926			8,612			6,983			5,796
Interest expense		3,717			3,807			2,960			1,389			410
Total expenses	$	218,807		$	259,125		$	241,190		$	179,272		$	167,703
Income before income taxes		30,298			24,818			26,111			9,305			1,567
Income tax expense		11,462			8,256			9,326			4,275			632
Net income	$	18,836		$	16,562		$	16,785		$	5,030		$	935
Operating Data:
Direct premiums written	$	220,565		$	266,827		$	270,331		$	260,173		$	231,083
Gross premiums written		225,545			273,713			277,095			270,981			239,484
Net premiums written		221,084			264,788			267,652			217,472			144,952
Per Share Data:
Earnings per share
Basic	$	1.20		$	1.15		$	3.13		$	0.94		$	0.17
Diluted		1.20			1.11			1.76			0.53			0.10
Weighted average common shares outstanding
Basic		15,647			14,452			5,367			5,368			5,368
Diluted		15,656			14,931			9,562			9,564			9,562
Selected Insurance Ratios:
Net loss ratio(5)		55.2	%		61.4	%		56.0	%		65.7	%		66.7	%
Net policy acquisition expense ratio(6)		18.0			18.6			20.1			10.8			13.2
Underwriting and other expense ratio(7)		15.7			12.1			13.4			17.8			18.4
Net combined ratio, excluding policyholder dividends(8)		88.9	%		92.1	%		89.5	%		94.3	%		98.3	%
Dividend ratio(9)		4.9			3.7			3.4			3.9			3.5
Net combined ratio, including policyholder dividends(10)		93.8	%		95.8	%		92.9	%		98.2	%		101.8	%

43

	As of December 31,
	2007		2006		2005		2004		2003
	(Dollars and shares in thousands, except per share data)
Balance Sheet Data:
Assets
Cash and investments	$	454,199	$	436,775	$	338,546	$	265,407	$	183,884
Premiums receivable—net		88,486		106,270		104,522		101,638		96,818
Reinsurance recoverables		67,807		75,360		83,880		115,870		99,894
Deferred policy acquisition costs		19,116		20,749		19,413		14,695		4,902
Deferred income taxes		19,889		21,613		20,871		17,646		19,368
Other assets		19,666		23,730		22,455		32,814		52,506
Total assets	$	669,163	$	684,497	$	589,687	$	548,070	$	457,372

Liabilities and stockholders’ equity
Unpaid losses and loss adjustment expenses	$	324,224	$	334,363	$	309,857	$	297,698	$	251,122
Unearned and advance premiums		102,672		115,218		115,574		114,235		102,804
Notes payable		36,464		38,250		40,036		41,821		11,607
Other liabilities		47,626		57,378		52,239		35,981		37,055
Total liabilities		510,986		545,209		517,706		489,735		402,588
Preferred stock		–		–		23,098		23,098		23,098
Total stockholders’ equity		158,177		139,288		71,981		58,335		54,784
Total liabilities and stockholders’ equity	$	669,163	$	684,497	$	589,687	$	548,070	$	457,372

(1) Includes a pre-tax loss of $2.1 million from the commutation of two reinsurance agreements in 2003.

(2) Includes favorable loss reserve development for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 of $36.5 million, $14.2 million, $24.7 million, $8.3 million, and $1.0 million, respectively.

(3) During 2006, the second injury fund assessment rate in South Carolina decreased to 24.5% on losses.  The impact of this rate change was to increase 2006 pre-tax income by $2.8 million.

(4) Beginning in the third quarter of 2005, the second injury fund assessment in South Carolina was doubled, which resulted in a pre-tax charge of $3.3 million in the third quarter of 2005.

(5) Losses and LAE divided by net premiums earned, after the effects of reinsurance.

(6) Policy acquisition expenses, including commissions, assessments, premium tax and general and administrative expenses directly associated with policy acquisition, divided by net premiums earned, after the effects of reinsurance.

(7) Underwriting and other expenses not directly associated with policy acquisition divided by net premiums earned.

(8) Sum of ratios referenced in footnotes 5, 6 and 7.

(9) Dividends to policyholders divided by net premiums earned.

(10) Sum of ratios computed in footnotes 8 and 9.

44

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes appearing elsewhere in this report.

In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties.  Our actual results in future periods may differ from those referred to herein due to a number of factors, including the risks described in the sections entitled “Risk Factors” and “Forward-Looking Statements and Associated Risks” and elsewhere in this report.

Overview

AmCOMP Incorporated, a Delaware corporation, is a holding company engaged through its wholly-owned subsidiaries, including AmCOMP Preferred and AmCOMP Assurance, in the workers’ compensation insurance business.  Our long-term source of consolidated earnings is principally the income from our workers’ compensation insurance business and investment income from our investment portfolio.  Workers’ compensation insurance provides coverage for the statutorily prescribed wage replacement and medical care benefits that employers are required to make available to their employees injured in the course of employment.  We are licensed as an insurance carrier in 25 states and the District of Columbia, but currently focus our resources in 17 states that we believe provide the greatest opportunity for near-term profitable growth.

Our results of operations are affected by the following business and accounting factors and critical accounting policies:

Revenues

Our revenues are principally derived from:

· premiums we earn from the sale of workers’ compensation insurance policies and from the portion of the premiums assumed from the National Workers’ Compensation Reinsurance Pool (“NWCRP”) and other state mandated involuntary pools, which we refer to as gross premiums, less the portion of those premiums that we cede to other insurers, which we refer to as ceded premiums.  We refer to the difference between gross premiums and ceded premiums as net premiums; and

· investment income that we earn on invested assets.

Expenses

Our expenses primarily consist of:

· insurance losses and LAE relating to the insurance policies we write directly and to the portion of the losses assumed from the state mandated involuntary pools, including estimates for losses incurred during the period and changes in estimates from prior periods, which we refer to as gross losses and LAE, less the portion of those insurance losses and LAE that we cede to our reinsurers, which we refer to as ceded losses and LAE.  We refer to the difference as net losses and LAE;

· dividends paid to policyholders, primarily in administered pricing states where premium rates are set by the regulators;

45

· commissions and other underwriting expenses, which consist of commissions we pay to agents, premium taxes and company expenses related to the production and underwriting of insurance policies, less ceding commissions reinsurers pay to us under our reinsurance contracts;

· other operating and general expenses, which include general and administrative expenses such as salaries, rent, office supplies and depreciation and other expenses not otherwise classified separately;

· assessments and premium surcharges related to our insurance activities, including assessments and premium surcharges for state guaranty funds and other second injury funds; and

· interest expense under our bank credit facility and surplus notes issued to third parties.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements.  As more information becomes known, these estimates and assumptions could change, which would have an impact on the amounts reported in the future.  We view as our critical accounting policies the estimates and assumptions used in establishing our loss reserves, reinsurance,  reinsurance recoverables, premium revenues, deferred policy acquisition costs, valuation of investments, dividends to policyholders, and income taxes.

Loss and Loss Adjustment Expenses

We are directly liable for losses and LAE under the terms of insurance policies our insurance subsidiaries underwrite.  We are also liable for a proportional share of losses from state mandated involuntary pools.  The state mandated involuntary pools are a mechanism used to reinsure the risk underwritten by state created workers’ compensation insurance.  Insurance companies are generally required to participate in these state created workers’ compensation insurance programs as a condition to conducting business in these states.  The NWCRP, the largest of the state mandated involuntary pools, is administered by NCCI.  Each year, NCCI establishes an estimated reserve for losses arising from this pool and notifies us of our proportionate share of loss reserves from this pool.  We add our share of the loss reserves from this pool to the loss reserves for the insurance policies our insurance subsidiaries underwrite.  Significant periods of time can elapse between the occurrence of an insured loss, the reporting of the loss to the insurer and the insurer’s payment of that loss.  To recognize liabilities for unpaid loss and LAE, insurers establish reserves as balance sheet liabilities representing estimates of amounts needed to pay reported and unreported net losses and loss expenses.  Except as mandated by Texas statutes on fatality claims where the calculation takes into account the life expectancy of a surviving spouse, we do not discount our reserves for estimated losses and LAE.

When claims are reported to one of our insurance subsidiaries, its claims personnel establish “case reserves” that represent an estimate of the amount (including LAE) that we will have to pay in respect of these claims.  The amount of the reserve is primarily based upon a case-by-case evaluation of the claims involved, the circumstances surrounding each claim, historical loss experience and the policy provisions relating to the type of losses.  The estimate reflects the informed judgment of our claims personnel based on general insurance reserving practices, as well as the experience and knowledge of the claims personnel.  Our claims professionals continually monitor all open claims.  As new information becomes available about the claims, the case reserves may be updated.

In accordance with industry practice, we also maintain estimates of reserves for losses and LAE incurred but not reported, or IBNR.  IBNR reserves, unlike case reserves, do not apply to a specific claim, but rather apply to the entire body of claims arising from a specific time period.  IBNR primarily provides for costs due to:

· future claim payments and LAE in addition to case reserves due to unforeseen or unknown events;

· additional claim payments on closed claims;

· claims that have not yet been reported to us; and

· development in excess of claim reserves on claims that have been reported to us.

46

Our internal actuaries and the independent actuarial consulting firm we have retained prepare estimates of our insurance subsidiaries’ IBNR reserves by state and loss year using generally accepted actuarial techniques.  These estimates are currently prepared quarterly.  Our independent actuarial firm participates in our IBNR estimation process three times annually (as of June 30, September 30 and December 31).  These estimates are analyzed on a gross of reinsurance basis and on a net of all reinsurance recoverables basis.  Estimation of loss reserves is subject to variation as a result of factors such as inflation, claims settlement patterns, legislative activity and litigation trends.  Our IBNR estimates are affected by the results of nine separate actuarial reserving methods, our assumptions regarding the adequacy of case reserves, the impact of future wage and medical inflation, litigation trends, the quality of recent underwriting standards and actuarial judgment.  Consistent with industry practices, the actuarial judgment of our management plays a significant part in the reserving process.  Actuarial judgment takes into account our assumptions regarding future claims emergence, the number of claims to be closed in the future with or without payment, amounts that may be collected from subrogation and any other changes expected to occur in the future.  Changes in the assumptions we employ or our estimates associated with such assumptions could result in materially different amounts being reported as reserves.  If necessary, we will increase or decrease the level of our reserves, with a corresponding change in our expenses in the period in which the increase or decrease occurs, as experience develops or new information becomes known in the period in which changes to the estimates are determined.  As of December 31, 2007, our case reserves and IBNR net of reinsurance were $176.8 million and $81.1 million, respectively.  Gross of reinsurance, these amounts were $198.3 million and $125.9 million, respectively.

The range of estimates for IBNR as of December 31, 2007 produced by the various separate actuarial reserving methods we reviewed ranged from $42.4 million above the point estimate (for the reserve development method) and $30.2 million below the point estimate (for the paid loss development method).  This range does not necessarily constitute a range of reasonable estimates and does not imply that each of these loss estimates is equally likely.  No one actuarial reserving method has consistently been found to be more predictive than any other.

We arrive at our estimate of company-wide reserves and IBNR by separately analyzing loss information for each state and each accident year.  In addition, in some cases we analyze our loss data on an even more refined basis whenever required to calculate the IBNR recoverable under our reinsurance agreements.

We and our independent actuarial firm prepare IBNR estimates using nine separate actuarial methods.  Each of these methods arrives at a different estimate of IBNR by assigning different weights to assumptions based upon three factors affecting the claim closure process: (1) claim payment and reporting patterns (loss development patterns); (2) expected ultimate net loss ratios; and (3) average claim costs and claim frequency.  Each of these assumptions changes depending on the state and accident year being examined.  In most cases the assumptions do not change between successive actuarial reviews.

The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period is known as “development.”  Development is unfavorable when ultimate losses indicate a basis for increases over the established reserves.  Development is favorable when ultimate losses indicate a basis for reducing the established reserves.  Favorable or unfavorable development of loss reserves is reflected in the earnings of the period during which the development is identified.  A 10-year history of the development of our loss reserves is set forth in the loss development table in this report under “Business—Loss and Loss Adjustment Expense Reserves.”  Our current loss reserve estimates may be subject to development in future years and reserve development may take a long time to appear because of the uncertainty inherent in currently estimating long-term liabilities.

The state-specific assumptions regarding the claim payment and claim reporting patterns are established by considering loss development patterns for the industry, as well as our loss development patterns for the state being examined and Florida, the state in which we have the most extensive loss experience.  The state-specific assumptions regarding the expected net loss ratios are established by examining historic pricing levels in that state for that accident year and our and the consulting firm’s judgment on the expected difference between our net loss ratio and that of the workers’ compensation insurance industry given the same pricing structure.  Claim cost and claim averages are based on AmCOMP’s history and our judgment and that of the independent actuarial firm regarding trends.

47

We develop our IBNR estimate separately, for each state and accident year, based on our review of the results of nine separate actuarial methods (five separate methods for accident years prior to 1998) and actuarial judgment.  After reviewing the nine actuarial methods for each state and accident year, we select an estimate of ultimate losses (the “point estimate”) for each state and accident year.  Our point estimate of IBNR is the compilation of the estimate of ultimate losses by state for each accident year and equals the total ultimate loss estimate minus the incurred losses.  We book to this point estimate.  We observe that the selected estimated ultimate loss is most sensitive to four of the nine actuarial methods examined:

1. Paid Bornhuetter-Ferguson Method - A method assigning partial weight to the initial expected losses (calculated from the initial expected loss ratio) and partial weight to observed paid losses.  The weights assigned to the initial expected losses decrease as the accident year matures.

2. Incurred Bornhuetter-Ferguson Method - A method assigning partial weight to the initial expected losses (calculated from the initial expected loss ratio) and partial weight to observed incurred losses.  The weights assigned to the initial expected losses decrease as the accident year matures.

3. Paid Development Method - A method using historical, cumulative paid losses by accident year and develops those actual losses to estimated ultimate losses based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is analogous to prior years.

4. Incurred Development Method - A method using historical, cumulative incurred losses by accident year and develops those actual losses to estimated ultimate losses based upon the assumption that each accident year will develop to estimated ultimate cost in a manner that is analogous to prior years.

All of the methods described above utilize expected loss payment and reporting patterns for losses and our actual paid and reported losses and LAE to estimate the reserve.  The expected payment and reporting patterns are based on state specific industry patterns as well as our historical patterns.  The expected payment and reporting patterns can change whenever there is new information that leads the consulting actuary to believe that the pattern of future loss payments will be different from what has historically been expected.  In addition, the first two methods utilize our initial expected loss ratio (the ratio of losses and LAE incurred to net premiums earned) to estimate the reserve.  The initial expected loss ratio is estimated based on the average premium level of our risks relative to industry expected losses for the size and types of risks we write.  The initial expected loss ratio will change between accident years depending on our pricing in those accident years, but generally will not change between successive evaluations of losses.

There are five other actuarial methods considered by us and some of these methods rely on assumptions about frequency and loss trends.  The results of these methods generally track with the four methods listed above.  Any changes in frequency and/or loss trends would impact the claim reporting and payment patterns.  Therefore, we believe the effect of these changes are implicitly considered in the sensitivity of reserve estimates to the four actuarial methods listed above.

Our aggregate reserve is a point estimate, which is the sum of the selected reserve for each state and accident year combination in which we have exposure.  This aggregate reserve calculated by us represents our best estimate of our outstanding loss and LAE.

Historically, our point estimate generally follows a weighting of the four methods described above.  The weights we observe are:

Accident Years	Method	Weight
2001 to 2006	Paid Bornhuetter-Ferguson Method	25%
2001 to 2006	Incurred Bornhuetter-Ferguson Method	25%
2001 to 2006	Paid Loss Development Method	25%
2001 to 2006	Incurred Loss Development Method	25%
1982 to 2000	Paid Bornhuetter-Ferguson Method	0%
1982 to 2000	Incurred Bornhuetter-Ferguson Method	0%
1982 to 2000	Paid Loss Development Method	50%
1982 to 2000	Incurred Loss Development Method	50%

48

We believe the weightings displayed above are appropriate for a long-tailed line of business such as workers’ compensation insurance.  Initially, when loss experience is very immature and the ultimate payout of our largest claims is still unknown, the expected loss ratio should carry relatively more weight than after experience has developed more fully.  As loss experience matures, the initial expected loss ratio becomes less important as it does not consider all of the new loss information that has become available.  As a result, the weighting of the Bornhuetter-Ferguson methods decreases from 25% to 0% after five years and the weighting of the loss development methods increases from 25% to 50% after 5 years.  The 0% weight of the Bornhuetter-Ferguson methods for accident years older than five years should not suggest that the Bornhuetter-Ferguson methods are not considered, but rather that they are typically not given significant weight when selecting our estimate of ultimate losses for older accident years.  In the future, as we compare the actual losses with the different estimates of losses for recent accident years, we may change the relative weightings of these and other actuarial methods.

Reserve estimates derived using the Bornhuetter-Ferguson methods are driven by our assumptions related to the expected loss ratio and the expected reporting or payment pattern for losses, while reserve estimates derived using the loss development methods are solely driven by our assumptions related to the expected reporting and payment patterns, and are not at all affected by our assumptions related to the expected loss ratio.  Reporting and payment pattern refers to the estimated percentage of the ultimate losses for a particular state that have been reported or paid at a particular valuation date.  The table below quantifies the impact that reasonably likely changes in these three variables—the expected loss ratio, the expected payment pattern and the expected reporting pattern for losses—would have on the recorded net and gross reserves for losses and LAE at December 31, 2007.  Due to the selection of weights in the table above, changes in the initial expected loss ratio do not have an effect on accident years prior to 2001.

Sensitivity of Net Loss Reserves to Changes in Actuarial Assumptions
as of December 31, 2007
(all dollar amounts in thousands)
Change in Assumptions	Change in Net Loss Reserves

Improve Expected Loss Ratio by 10%	$       (7,468)
Deteriorate Expected Loss Ratio by 10%	7,468
Improve Paid Loss Development Pattern by 10%	(8,423)
Deteriorate Paid Loss Development Pattern by 10%	8,205
Improve Incurred Loss Development Pattern by 10%	(3,398)
Deteriorate Incurred Loss Development Pattern by 10%	3,355
Improve Expected Loss Ratio by 10% and Improve Loss Development Patterns by 10%	(18,813)
Improve Expected Loss Ratio by 10% and Deteriorate Loss Development Patterns by 10%	3,641
Deteriorate Expected Loss Ratio by 10% and Improve Loss Development Patterns by 10%	(4,829)
Deteriorate Expected Loss Ratio by 10% and Deteriorate Loss Development Patterns by 10%	19,477

49

Sensitivity of Gross Loss Reserves to Changes in Actuarial Assumptions
as of December 31, 2007
(all dollar amounts in thousands)
Change in Assumptions	Change in Gross Loss Reserves

Improve Expected Loss Ratio by 10%	$      (9,565)
Deteriorate Expected Loss Ratio by 10%	9,565
Improve Paid Loss Development Pattern by 10%	(12,788)
Deteriorate Paid Loss Development Pattern by 10%	9,753
Improve Incurred Loss Development Pattern by 10%	(4,932)
Deteriorate Incurred Loss Development Pattern by 10%	4,877
Improve Expected Loss Ratio by 10% and Improve Loss Development Patterns by 10%	(26,655)
Improve Expected Loss Ratio by 10% and Deteriorate Loss Development Patterns by 10%	7,231
Deteriorate Expected Loss Ratio by 10% and Improve Loss Development Patterns by 10%	(8,785)
Deteriorate Expected Loss Ratio by 10% and Deteriorate Loss Development Patterns by 10%	27,555

As summarized in the tables above, we estimated the sensitivity of the reserve estimates to three items:

1.  Changes in the initial expected loss ratio—We varied the initial expected loss ratio utilized in the Bornhuetter-Ferguson methods by + / - 10% (e.g., if the initial expected loss ratio was 60% for a particular state and accident year, we calculated the sensitivity of reserves to a change in loss ratio of 6% = 10% ´ 60%).  Changes in the initial expected loss ratio affect the results of the two Bornhuetter-Ferguson methods.

2.  Changes in the paid loss development pattern—We varied the paid loss development pattern by + / - 10% (e.g., if paid losses were expected to develop by 50% for a particular state and accident year, we calculated the sensitivity of reserves to a change in paid loss development factors of 5.0% = 10% ´ 50%).  Changes in the paid loss development factors affect the results of the Paid Loss Bornhuetter-Ferguson Method and the Paid Loss Development Method.

3.  Changes in the incurred loss development pattern—We varied the incurred loss development pattern by + / - 10% (e.g., if incurred losses were expected to develop by 30% for a particular state and accident year, we calculated the sensitivity of reserves to a change in incurred loss development factors of 3.0% = 10% ´ 30%).  Changes in the incurred loss development factors affect the results of the Incurred Loss Bornhuetter-Ferguson Method and the Incurred Loss Development Method.

We believe that loss ratios 10% above or below our expected loss ratio constitute a reasonable range of expectations for each state and accident year in which we have loss reserves.  In addition, we believe the adjustments (10%) that we made to improve or deteriorate the paid and incurred loss development patterns are also reasonably likely outcomes.  Assumptions about loss development patterns are made based on our entire claim history back to 1982, while assumptions about expected loss ratios are made based on our current pricing and only up to two years of aggregated industry data.  As a result of the longer relevant history of loss patterns, loss development patterns are considerably more stable and warrant a smaller variation.  Such changes in the net reserves for losses and loss adjustment expense would not have an immediate impact on our liquidity, but would affect cash flow in future periods as the incremental or reduced amount of losses is paid.

50

Our reserves are driven by a number of important assumptions including litigation and regulatory trends, legislative activity, social and economic patterns and claims inflation assumptions.  Our reserve estimates reflect expected inflation in legal claims settlements and assume we will not be subject to losses from significant new legal liability theories.  Our reserve estimates also assume that we will not experience significant losses from mass torts and that we will not incur losses from future mass torts not known to us today.  While it is not possible to predict the impact of changes in this environment, if new mass torts or expanded legal theories of liability emerge, our IBNR claims may differ substantially from our IBNR reserves.  Our reserve estimates assume that there will not be significant changes in the regulatory and legislative environment.  The impact of potential changes in the regulatory or legislative environment is difficult to quantify in the absence of specific, significant new regulation or legislation.  In the event of significant new regulation or legislation, we will attempt to quantify its impact on our business.  These estimates also assume that the inflation assumption implicitly built into our reserving philosophy, expected loss ratio, and loss payment and reporting patterns will continue into the future.  Unexpected changes in loss cost inflation can occur through changes in general inflationary trends, changes in medical technology and procedures, changes in wage levels and general economic conditions in particular geographic areas and changes in legal theories of liability.

Reinsurance

Reinsurance premiums, losses, and LAE are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.  Reinsurance ceding commissions received are deferred and amortized over the effective period of the related insurance policies.

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 for losses and LAE.  These recoverables, by necessity, are based upon estimates and are reported on our balance sheet separately as assets, as reinsurance does not relieve us of our legal liability to policyholders.  We are required to pay losses even if a reinsurer fails to meet its obligations under the applicable reinsurance agreement.  We continually monitor the financial condition and rating agency ratings of our reinsurers.  We require reinsurers that are not admitted reinsurers in Florida, if any, (where our insurance subsidiaries are domiciled) to collateralize their share of the unearned premiums and unpaid loss reserves in order that our insurance subsidiaries receive credit for reinsurance on their statutory financial statements.  We bear credit risk with respect to the reinsurers, which can be significant considering that some of the unpaid losses and LAE remain outstanding for an extended period of time.  While management believes that the amount accrued is collectible, the ultimate recovery may be greater or less than the amount accrued.

Recognition of Premium Revenue

All premium revenue is recognized over the period of the contract in proportion to the amount of insurance protection provided.  The insurance premiums we charge are billed to our policyholders either annually or under various installment plans based on the estimated annual premium under the policy terms.  We recognize the premium revenue for the proportionate share of the risks assumed from state mandated involuntary pools on a quarterly basis.  At the end of the policy term, payroll-based premium audits are performed on substantially all policyholder accounts to determine earned premiums for the policy year.  Earned but unbilled premiums include estimated future audit premiums.  Estimates of future audit premiums are based on our historical experience.  These estimates are subject to changes in policyholders’ payrolls due to growth, economic conditions and seasonality.  Although considerable variability is inherent in such estimates, management believes that the accrual for earned but unbilled premiums is reasonable.  The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known.  Any such adjustments are included in current operations.  The reserve for unearned premiums is determined on a daily pro rata basis.

51

Deferred Policy Acquisition Costs

To the extent recoverable from future policy revenues, costs that vary with and are primarily related to the production of new and renewal business, such as commissions paid to agents and our other acquisition expenses, net of reinsurance ceding allowances received, have been deferred and are amortized over the effective period of the related insurance policies.  The method followed in computing deferred policy acquisition costs limits such deferred amounts to their estimated realizable value.  The ultimate recoverability of deferred acquisition costs is dependent on the continued profitability of our insurance underwriting.  If our insurance underwriting ceases to be profitable, we may have to write off a portion of our deferred policy acquisition costs, resulting in a further charge to income in the period in which the underwriting losses are recognized.  At December 31, 2007 and 2006, our deferred acquisition costs were $19.1 million and $20.7 million, respectively.

Investments

Fixed maturity investments are designated at purchase as held-to-maturity or available-for-sale.  Held-to-maturity investments are reported at amortized cost.  Securities classified as available-for-sale are reported at fair value with unrealized appreciation and depreciation, net of deferred taxes, on our balance sheet in accumulated other comprehensive income as a separate component of stockholders’ equity.  We have historically held until maturity those securities designated as held-to-maturity and intend to maintain our investment guidelines so that we would do so in the future.

Realized gains and losses on sales of investments are recognized in operations on the specific identification basis.

We continuously monitor our portfolio to preserve principal values whenever possible.  All securities in an unrealized loss position are reviewed to determine whether the impairment is other-than-temporary.  An investment in a fixed maturity security is impaired if its fair value falls below its book value.  Factors considered in determining whether a decline is considered to be other-than-temporary include length of time and the extent to which fair value has been below book value, the financial condition and near-term prospects of the issuer, and our ability and intent to hold the security until its expected recovery.  If an impairment of a security is determined to be other-than-temporary, such impairment will result in a charge to net income in the period in which such other-than-temporary determination is made.  For details on our investments in an unrealized loss position, see “Business—Investments.”

Dividends to Policyholders

An estimated provision for our dividends to policyholders is accrued as the related premiums are earned.  We offer dividend programs to our policyholders in Florida and Wisconsin, where rates are set by state insurance regulators, and in Georgia, Texas and Virginia, to a lesser extent.  These dividends are not guaranteed and are required to be approved by the boards of directors of our insurance subsidiaries.  The boards of directors may base their decisions to pay dividends on many factors, including (1) an individual policyholder’s net loss ratio, (2) the insurance subsidiary’s overall net loss ratio and (3) the terms of the individual policyholder’s dividend plan.  The type of dividend plan is stated in the policy and, other than with respect to flat dividend policies in Wisconsin, has a direct relationship to the amount of losses incurred under that policy.  The prior loss experience of the policyholder is a key element in the estimation of our dividend liability.

Income Taxes

In July 2006, the Financial Accounting Standards Board (“FASB”) issued an interpretation of FASB Statement No. 109, Accounting for Uncertainty in Income Taxes (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Interpretation establishes a “more likely than not” recognition threshold for tax benefits to be recognized in the financial statements.  The “more likely than not” determination is to be based solely on the technical merits of the position.  This interpretation was adopted by the Company on January 1, 2007.  As of the adoption date and as of December 31, 2007, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.  We recognize income tax related interest in interest expense and penalties in income tax expense.  Income tax related interest recognized in the year ended December 31, 2007 was $0.2 million.  Tax years 2003 through 2006 and 2002 through 2006 are subject to examination by the federal and state taxing authorities, respectively.  There are no income tax examinations currently in process.

52

Measurement of Results

We evaluate our operations by monitoring key measures of growth and profitability.  We measure our growth by examining our gross premiums.  We measure our operating results by examining our net income, return on equity, and our loss and LAE, expense, dividend and combined ratios.  The following provides further explanation of the key measures that we use to evaluate our results:

Gross Premiums Written.  Gross premiums written is the sum of direct premiums written and assumed premiums written.  Direct premiums written is the sum of the total policy premiums, net of cancellations, associated with policies underwritten by our insurance subsidiaries.  Assumed premiums written represent our share of the premiums assumed from state mandated involuntary pools.  We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, as a measure of the underlying growth of our insurance business from period to period.

Net Premiums Written.  Net premiums written is the sum of direct premiums written and assumed premiums written less ceded premiums written.  Ceded premiums written is the portion of our direct premiums that we cede to our reinsurers under our reinsurance contracts.  We use net premiums written, primarily in relation to gross premiums written, to measure the amount of business retained after cession to reinsurers.

Gross Premiums Earned.  Gross premiums earned represent that portion of gross premiums written equal to the expired portion of the time for which the insurance policy was in effect during the financial year and is recognized as revenue.  For each day a one-year policy is in force, we earn 1/365th of the annual premium.

Net Premiums Earned.  Net premiums earned represents that portion of net premiums written equal to the expired portion of the time for which the insurance policy was in effect during the financial year and is recognized as revenue.  It represents the portion of premium that belongs to us on the part of the policy period that has passed and for which coverage has been provided.  Net premium earned is used to calculate the net loss, policy acquisition expense, underwriting and other epense and dividend ratios, as indicated below.

Net Loss Ratio.  The net loss ratio is a measure of the underwriting profitability of an insurance company’s business.  Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.

Like many insurance companies, we analyze our loss ratios on a calendar year basis and on an accident year basis.  A calendar year loss ratio is calculated by dividing the losses and LAE incurred during the calendar year, regardless of when the underlying insured event occurred, by the premiums earned during that calendar year.  The calendar year net loss ratio includes changes made during the calendar year in reserves for losses and LAE established for insured events occurring in all prior periods.  A calendar year net loss ratio is calculated using premiums and losses and LAE that are net of amounts ceded to reinsurers.

An accident year loss ratio is calculated by dividing the losses and LAE, regardless of when such losses and LAE are incurred, for insured events that occurred during a particular year by the premiums earned for that year.  An accident year net loss ratio is calculated using premiums and losses and LAE that are net of amounts ceded to reinsurers.  An accident year loss ratio for a particular year can decrease or increase when recalculated in subsequent periods as the reserves established for insured events occurring during that year develop favorably or unfavorably, respectively, whereas the calendar year loss ratio for a particular year will not change in future periods.

We analyze our calendar year loss ratio to measure our profitability in a particular year and to evaluate the adequacy of our premium rates charged in a particular year to cover expected losses and LAE from all periods, including development (whether favorable or unfavorable) of reserves established in prior periods.  In contrast, we analyze our accident year loss ratios to evaluate our underwriting performance and the adequacy of the premium rates we charged in a particular year in relation to ultimate losses and LAE from insured events occurring during that year.

While calendar year loss ratios are useful in measuring our profitability, we believe that accident year loss ratios are more useful in evaluating our underwriting performance for any particular year because an accident year loss ratio better matches premium and loss information.  Furthermore, accident year loss ratios are not distorted by adjustments to reserves established for insured events that occurred in other periods, which may be influenced by factors that are not generally applicable to all years.  The loss ratios provided in this report are calendar year loss ratios, except where they are expressly identified as accident year loss ratios.  See “—Results of Operations,” “Business—Overview” and “—Regulation.”

53

Policy Acquisition Expense Ratio.  The policy acquisition expense ratio is a measure of an insurance company’s operational efficiency in producing and underwriting its business. Expressed as a percentage, this is the ratio of premium acquisition expenses to net premiums earned.

Underwriting and Other Expense Ratio.  The underwriting and other expense ratio is a measure of an insurance company’s operational efficiency in administering its business. Expressed as a percentage, this is the ratio of underwriting and other expenses to net premiums earned. For underwriting and other expense ratio purposes, underwriting and other expenses of an insurance company exclude investment expenses and dividends to policyholders.

Dividend Ratio.  The dividends to policyholders ratio equals policy dividends incurred in the current year divided by net premiums earned for the year.

Net Combined Ratio.  The net combined ratio is a measure of an insurance company’s overall underwriting profit.  This is the sum of the net loss, policy acquisition expense, underwriting and other expense, and dividend ratios.  If the net combined ratio is at or above 100%, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.

Return on Equity.  This percentage is the sum of return on equity (“ROE”) from underwriting, ROE from investing, the ROE impact of debt and ROE from other income, multiplied by one minus the effective tax rate.   ROE from underwriting is calculated as one minus the combined ratio, representing our underwriting profit percentage, multiplied by our operating leverage (annualized net premiums earned divided by average equity).  ROE from investing is calculated by multiplying the investment yield for the period by our investment leverage (average investments divided by average equity).  The ROE impact of debt is calculated by multiplying the effective interest rate on debt for the period by our financial leverage (average debt divided by average equity).  We use return on equity to measure our growth and profitability. We can compare our return on equity to that of other companies in our industry to see how we are performing compared to our competition.

54

Results of Operations

Years Ended December 31, 2007, 2006 and 2005

	Year Ended December 31,
	2007			2006			2005			Increase (decrease) 2007 over 2006			Increase (decrease) 2006 over 2005
	(Dollars in thousands)
Selected Financial Data:
Gross premiums written	$	225,545		$	273,713		$	277,095			(17.6	)%		(1.2	)%
Net premiums written		221,084			264,788			267,652			(16.5	)		(1.1	)
Gross premiums earned		236,997			277,018			276,117			(14.4	)		0.3
Net premiums earned		229,349			266,456			256,603			(13.9	)		3.8
Net investment income		20,102			17,461			10,798			15.1			61.7
Net realized investment loss		(473	)		(307	)		(385	)		54.1			(20.3	)
Other income		127			333			285			(61.9	)		16.8
Total revenue	$	249,105		$	283,943		$	267,301			(12.3	)%		6.2	%
Losses and loss adjustment expenses		126,562			163,670			143,663			(22.7	)		13.9
Policy acquisition expenses		41,180			49,547			51,508			(16.9	)		(3.8	)
Underwriting and other expenses		36,014			32,175			34,447			11.9			(6.6	)
Dividends to policyholders		11,334			9,926			8,612			14.2			15.3
Interest expense		3,717			3,807			2,960			(2.4	)		28.6
Federal and state income taxes		11,462			8,256			9,326			38.8			(11.5	)
Net income	$	18,836		$	16,562		$	16,785			13.7	%		(1.3	)%
Key Financial Ratios:
Net loss ratio		55.2	%		61.4	%		56.0	%
Net policy acquisition expense ratio		18.0			18.6			20.1
Underwriting and other expense ratio		15.7			12.1			13.4
Net combined ratio, excluding policyholder dividends		88.9	%		92.1	%		89.5	%
Dividend ratio		4.9			3.7			3.4
Net combined ratio, including policyholder dividends		93.8	%		95.8	%		92.9	%
Return on equity		12.7	%		15.7	%		25.8	%

Gross premiums written decreased $48.2 million, or 17.6% in 2007 as compared to 2006. Direct premiums written decreased $46.3 million, while assumed premiums written decreased $1.9 million.  Direct premiums written decreased due to decreases in writings in Florida ($37.5 million), Indiana ($7.3 million), Wisconsin ($3.1 million), and Texas ($2.7 million), offset by increases in Illinois ($2.2 million), and Mississippi ($1.6 million), combined with other smaller changes.  The decrease in Florida premiums is the result of the 15.7% rate decrease in 2007, a 5.7% decline in in-force policies as of December 31, 2007 from 2006, and a reduction in construction-related payrolls.  For all other states with significant changes in direct premiums written, generally, the change in the number of policies is consistent with the change in premiums written.  The decrease in assumed premiums written is the result of a decrease in Indiana premiums assumed through involuntary pools.  Such increases or decreases in premiums assumed from involuntary pools are the result of changes in the total written premiums in the pool and/or a change in the Company’s premiums as a percentage of total premiums written in the state for the same line of business.

55

Gross premiums written decreased $3.4 million, or 1.2% in 2006 as compared to 2005. Direct premiums written decreased $3.5 million, while assumed premiums written increased $0.1 million.  The decrease in direct premiums written is primarily driven by decreases in direct written premiums in Florida ($8.4 million), Indiana ($6.8 million), and Tennessee ($3.3 million), offset by increases in Texas ($5.0 million), Illinois ($3.3 million), Wisconsin ($2.9 million), North Carolina ($2.5 million), and Virginia ($1.5 million).  All other states combined decreased by $0.2 million.  The decrease in Florida premiums is the result of a rate decrease during the year, with the number of policies written in Florida remaining relatively flat.  For all other states with significant changes in direct premiums written, the change in the number of policies was consistent with the change in direct premiums written.  The overall number of policies written decreased 2.2% during the year.

              Net premiums written decreased $43.7 million, or 16.5% in 2007 as compared to 2006.  This decrease is the result of the decrease in gross premiums written, combined with a decrease in ceded premiums written of $4.5 million.  The decrease in ceded premiums written is the result of a change in the ceded reinsurance agreement to ceding on an earned basis from ceding on a written basis.  The retention in our 2007 and 2006 excess-of-loss treaties was unchanged at $2.0 million.

Net premiums written decreased $2.9 million, or 1.1% in 2006 as compared to 2005.  This decrease is the result of the decrease in gross premiums written.  The retention in our 2006 and 2005 excess-of-loss treaties was unchanged at $2.0 million.

Gross premiums earned decreased $40.0 million, or 14.4% in 2007 as compared to 2006.  This decrease is primarily the result of a decrease in direct earned premiums, with the largest decreases being in Florida ($31.8 million), Indiana ($6.9 million), Tennessee ($2.2 million), Wisconsin ($2.0 million) and Kentucky ($1.4 million), offset by increases in Illinois ($2.8 million) and Georgia ($1.2 million), combined with other smaller changes.  Assumed premiums earned also decreased by $1.9 million, as a result of the decrease in assumed premiums written.

Gross premiums earned increased $0.9 million, or 0.3% in 2006 as compared to 2005.  This increase is the direct result of an increase in direct earned premiums, with the largest increases being in Wisconsin ($4.3 million), Texas ($3.7 million) and Illinois ($3.5 million), offset by decreases in Indiana ($5.6 million) and Tennessee ($4.6 million).  Florida earned premium decreased $0.7 million.

Net premiums earned decreased $37.1 million, or 13.9% in 2007 as compared to 2006.  This decrease is primarily the result of the decrease in gross premiums earned.  The change in gross premiums earned was partially offset by a $2.9 million decrease in ceded premiums earned, caused by a decrease in the reinsurance premiums rates from 4.5% of direct premiums on the 2005 treaties to 3.2% on the 2006 and 2007 treaties.  As the 2005 treaty was settled on a run-off basis, the rate on the 2005 treaty continued to impact ceded premiums earned in 2006.

Net premiums earned increased $9.9 million, or 3.8 % in 2006 as compared to 2005.  This increase is in part attributable to the elimination of the quota share reinsurance on all new and renewal business after July 1, 2004.  During 2006 the activity on quota share treaties was minimal and attributable to premium audits performed on prior year policies.  In 2005, $7.3 million of earned premiums was ceded under quota share reinsurance agreements  The remaining increase in 2006 net premiums earned is primarily the result of the reduction in the excess-of-loss reinsurance contractual rate from 4.5% of direct premiums written in 2005 to 3.2% in 2006.  The rate decrease in the excess-of-loss reinsurance is due to the elimination of ceding commission in the 2006 contract.

56

The table below sets forth the calculation of net premiums earned and this amount as a percentage of gross premiums earned:

	2007			Percent of Gross Premiums Earned			2006			Percent of Gross Premiums Earned			2005			Percent of Gross Premiums Earned
	(Dollars in thousands)
Gross premiums earned	$	236,997			100.0	%	$	277,018			100.0	%	$	276,117			100.0	%
Excess reinsurance premiums		(7,619	)		(3.2	)		(10,814	)		(3.9	)		(12,224	)		(4.5	)
Facultative reinsurance premiums		–			–			221			0.1			–			–
Quota share reinsurance premiums		(29	)		0.0			31			0.0			(7,290	)		(2.6	)
Net premiums earned	$	229,349			96.8	%	$	266,456			96.2	%	$	256,603			92.9	%

Net investment income increased $2.6 million or 15.1% in 2007 as compared to 2006. The increase is attributable to a 15.0% increase in the average balance of invested assets during 2007 as compared to 2006.  The additional funds available for investment were provided by cash generated from operating activities.

Net investment incomeincreased $6.7 million or 61.7% in 2006 as compared to 2005. The increase is attributable to two factors.  First, the investment portfolio increased $94.1 million over December 31, 2005. The additional funds available for investment were provided by $48.0 million of net initial public offering proceeds, and $54.2 million of net cash provided by operating activities.  Additionally, at December 31, 2006, the yield to maturity on the portfolio increased to 5.4% from 4.9% in the prior year.

Losses and loss adjustment expenses decreased $37.1 million, or 22.7% in 2007 as compared to 2006.  Loss and loss adjustment expenses were 55.2% and 61.4% of net premiums earned in 2007 and 2006, respectively.  These changes are the result of a few factors.  First, reflected in our losses and LAE in 2007 is a $36.5 million redundancy, net of reinsurance, for years prior to 2007.  Excluding business assumed from state mandated pools, the redundancy in the year ended December 31, 2007 was attributable to prior accident year reserve decreases in Florida ($17.6 million), Tennessee ($4.9 million), Wisconsin ($2.8 million), Indiana ($2.8 million), South Carolina ($2.2 million), Texas ($2.2 million), North Carolina ($1.7 million), Georgia ($1.2 million) and less significant decreases in several other states.  The accident years with the largest redundancies were 2006 ($13.4 million), 2005 ($11.1 million) and 2004 ($6.4 million).  The redundancy for 2007 was more than the redundancy of $14.2 million in 2006.  Second, loss and loss adjustment expenses decreased as a result of the decrease in net premiums earned discussed above.  These decreases in loss and loss adjustment expense were partially offset by an increase in the current net accident year loss ratio.  The current net accident year loss ratio, excluding business assumed from state mandated pools and adjusting and other expense, increased to 66.6% for 2007 from 63.4% in 2006.  Additionally, adjusting and other expense was 4.8% of net premiums earned in 2007, up from 3.9% in 2006.

Losses and loss adjustment expenses increased $20.0 million, or 13.9% in 2006 as compared to 2005.  Loss and loss adjustment expenses were 61.4% and 56.0% of net premiums earned in 2006 and 2005, respectively.  The primary causes of the increased loss ratios are the reduction of the redundancy as well as an increase in catastrophic claims and an overall increase in severity during 2006.  Reflected in our losses and LAE in 2006, is a $14.2 million redundancy, net of reinsurance, for years prior to 2006.  Excluding assumed business, this redundancy was attributable to prior accident year reserve decreases in Florida ($10.9 million), Tennessee ($7.2 million), Indiana ($4.3 million), and Texas ($3.7 million), offset by increases in North Carolina ($4.7 million), and Wisconsin ($3.8 million), with the remaining offset being attributable to other states and assumed business.  Reflected in our losses and LAE in 2005, was a $24.7 million redundancy, net of reinsurance, for years prior to 2005.  Additionally, as of December 31, 2006, the current accident year loss ratio, excluding the involuntary pool and ULAE, increased to 63.4% from 61.3% for the prior accident year.  Contributing to the higher accident year loss ratio were increases in South Carolina (to 124.2% from 66.9% at December 31, 2005), Virginia (to 95.1% from 56.5%), Georgia (to 80.3% from 60.7%), and North Carolina (to 91.5% from 67.5%).  These increases were offset by decreases in net accident year loss ratios for Tennessee (to 79.3% from 101.6%) and Texas (to 39.2% from 44.6%).  Loss and LAE on involuntary pools increased to 1.2% of net premiums earned from 0.8% as of December 31, 2005. Additionally, adjusting and other expense was 3.9% of net premiums earned in 2006, and 3.7% for 2005.

57

Policy acquisition expenses decreased $8.4 million, or 16.9% in 2007 as compared to 2006.  Policy acquisition expenses decreased to 18.0% from 18.6% of net premiums earned in 2007 and 2006, respectively.  This decrease is primarily the result of a decrease in assessments, offset by an increase in the general and administrative component of policy acquisition expenses.  Commissions and premium taxes as a percentage of net premiums earned were relatively consistent between 2007 and 2006.  Assessments, including guaranty fund credits which reduce premium tax expense, represented 1.4% of net premiums earned, compared to 2.9% for 2006.  The decrease in assessments is a result of decreases in subsequent injury fund and guaranty fund assessment expenses.  The decrease in subsequent injury fund assessment expense is primarily the result of decreases in Florida ($1.4 million) and South Carolina ($0.7 million) subsequent injury fund assessments, offset by an increase in the Georgia assessment ($0.8 million).  The decrease in the Florida subsequent injury fund assessment is a result of the decrease in Florida direct premiums written.  The South Carolina subsequent injury fund assessment decreased due to current year redundancies and a decrease in the current accident year loss ratio to 72.0% in 2007 from 126.2% in 2006.  The subsequent injury fund assessment for Georgia increased as a result of a rate increase in 2007 from 2006, partially offset by redundancies in 2007. The decrease in guaranty fund assessment expense is primarily the result of decreases related to Wisconsin ($0.9 million), Florida ($0.5 million) and Tennessee ($0.4 million).  In all three of these states, information obtained in the current year regarding insolvencies in the states lead us to believe that accruals held in the prior year could be removed or reduced.  The general and administrative expense component of policy acquisition expense represented 4.6% of net premiums earned, compared to 3.9% in 2006.  The increase in general and administrative expenses is the result of an increase in employee time spent prior to or at policy initiation.  Note that while commissions were flat in 2007 as compared to 2006, there was a decrease in direct commissions that was offset by a decrease in ceded commissions.  The decrease in direct commissions resulted from a decrease in direct premiums earned and a decrease in the commission payable accrual.  The decrease in the ceding commission received is the result of receiving no ceding commission on the 2007 and 2006 excess-of-loss reinsurance treaties, compared to the 35% commission received on the 2005 treaty, which was in run-off through 2006.

Policy acquisition expenses decreased $2.0 million, or 3.8% in 2006 as compared to 2005.  Policy acquisition expenses were 18.6% and 20.1% of net premiums earned in 2006 and 2005, respectively.  This decrease is the result of decreases in premium taxes and assessments, partially offset by increases in commissions and the general and administrative expense component of policy acquisition expenses.  Premium taxes represented 1.6% of net premiums earned, compared to 1.9% for 2005.  This decrease is the result of the application of state income tax credits allowed on the Florida premium tax return in the current year.  Assessments represented 3.0% of net premiums earned, compared to 6.5% for 2005.  This is due in part to a approximately 30% decrease in the South Carolina SDTF rate during the third quarter of 2006, and a 90% increase in the rate in the third quarter of 2005.  Additionally, in 2006 the rate used for the 2005 premium assessment by the Florida Guarantee Fund assessment was reduced to zero from the original 2% accrued during 2005.  The Florida Workers’ Compensation Insurance Guarantee Association did not assess the 2005 premiums in 2005; however, it reserved the right to assess the 2005 premiums in 2006 if any solvency issues arose that required additional cash flow for the Association. As no assessment was made during 2006 for premiums written in 2005, and the time period in which the Association was able to assess the 2005 premiums has passed, the accrual for assessment on the 2005 premium was reduced to zero.  These decreases were partially offset by an increase in commissions.  The commissions increase is the result of receiving no ceding commission to offset commission expense on the 2006 excess-of-loss treaty, compared to a 35% commission received on the 2005 treaty.  In 2005, ceding commissions reduced policy acquisition expenses by $7.4 million, which decreased the expense ratio by 2.9%.  In 2006, ceding commission was reduced to $1.9 million, which decreased the expense ratio by 0.7%.  The general and administrative expenses associated with policy acquisition costs represented 3.9% of net premiums earned, compared to 3.4% for 2005.  This increase is primarily the result of an increase in the payroll expense attributed to underwriting in 2006.

Underwriting and other expenses increased $3.8 million, or 11.9% in 2007 as compared to 2006.  Underwriting and other expenses were 15.7% and 12.1% of net premiums earned in 2007 and 2006, respectively.  The increase in underwriting and other expense is primarily attributable to increases in payroll related expense ($3.2 million), agent entertainment expense ($0.8 million), insurance expense ($0.5 million), and other smaller increases, offset by a decrease in bad debt expense ($1.1 million).  The increase in payroll related expense is the result of a 2.7% increase in the average number of employees in 2007 compared to 2006, combined with an increase in the average pay rate, and an increase in management team bonuses paid during the year.  The increase in agent entertainment expense is the result of agent events in 2007 related to the 25th anniversary of the Company, and a credit taken in 2006 related to an over-accrual in 2005.  The increase in insurance expense is due to an increase in employee insurance, with the greatest increase being for employee health insurance.   The increase in the cost of health insurance is the result of an 8% rate increase in 2007 and an increase in the average number of employees.  The decrease in bad debt expense is due to the reduction in premiums receivable and a refinement of the allowance for bad debt calculation in the current year.  The method used to determine the allowance for doubtful accounts was refined to limit the impact that non-cash premium adjustments have on the allowance calculated, as such premium adjustments are already accounted for in the earned but unbilled premium calculation.

58

Underwriting and other expenses decreased $2.3 million, or 6.6% in 2006 as compared to 2005.  Underwriting and other expenses were 12.1% and 13.4% of net premiums earned in 2006 and 2005, respectively.  The decrease in underwriting and other expense is primarily attributable to decreases in agent incentives of $1.0 million and litigation reserve expenses of $1.4 million.  In 2005 we recorded a $1.3 million accrual in connection with outstanding litigation, as discussed in Note 10, with no similar amount recorded in 2006.  Also in 2006, the positive premiums receivable collection trend continued, resulting in a reduced bad debt expense.  These decreases in underwriting and other expenses were partially offset by increases in expenses associated with being a public company including increases in auditing, actuarial, investor relations, Sarbanes Oxley compliance readiness, and directors and officers insurance.

Dividends to policyholders increased $1.4 million, or 14.2% in 2007 as compared to 2006.  Dividends to policyholders were 4.9% and 3.7% of net premiums earned in 2007 and 2006, respectively.  The increase in dividends to policyholders is a result of a refinement in the dividend accrual calculation, an increase in percentage of direct written premiums on dividend plans, and the accrual of $0.5 million of Florida excessive profits dividends.  Excluding Florida excessive profits dividends, the percentage of direct premiums written in Florida on a dividend plan increased to 46.8% in 2007 from 37.8% in 2006.  The percentage of direct premiums written in Wisconsin on a dividend plan increased to 90.7% in 2007 from 84.1% in 2006.  The company wide direct premiums written on a dividend plan increased to 27.5% in 2007 from 25.7% in 2006.  The accrual of Florida excessive profits was the result redundancies booked during the quarter that increased the Company’s profits in Florida for the years 2004 through 2006 combined.

Dividends to policyholders increased $1.3 million, or 15.3% in 2006 as compared to 2005.  Dividends to policyholders were 3.7% and 3.4% of net premiums earned in 2006 and 2005, respectively.  This is due to an increase in direct premiums earned in Wisconsin, one of the states in which policyholders are eligible for dividend plans. The percentage of direct premiums written in Florida on a dividend plan increased slightly to 37.8% in 2006 from 36.8% in 2005.  The percentage of direct premiums written in Wisconsin on a dividend plan decreased to 84.1% in 2006 from 86.4% in 2005.  The company wide direct premiums written on a dividend plan increased to 25.7% in 2006 from 24.9% in 2005.

Interest expense was relatively flat, with only a minor decrease of $0.1 million, or 2.4% in 2007 as compared to 2006.

Interest expense increased $0.8 million, or 28.6% in 2006 as compared to 2005.  The increase is attributable to an interest rate increase of approximately 1% on our $38.3 million of variable rate debt.  Additionally, during 2006, interest expense increased as the result of accruing approximately $0.3 million of interest in connection with an interest bearing payable.

Federal and state income taxes increased $3.2 million, or 38.8% in 2007 as compared to 2006.  Federal and state income taxes were 37.8% of pretax income in 2007, and 33.3% in 2006.  During 2006, the rate used on the federal deferred tax asset was increased from 34% to 35% as we expected to be in the 35% tax bracket when future tax assets were realized.  This change in the effective tax rate on net deferred tax assets decreased the effective tax rate in 2006 by 2.0%.  In 2007, the rate used on the state deferred tax asset was decreased from 3.5% to 2.2% to reflect the blended state tax rate that is expected to be in effect with the future tax assets are realized, based on changes in the Company’s mix of business by state.  This change in the state tax rate increased the effective tax rate in 2007 by 1.5%.  Provision to return adjustments booked in the current year also contributed to the increase in the effective tax rate.

Federal and state income taxes decreased $1.1 million, or 11.5% in 2006 as compared to 2005.  Federal and state income taxes were 33.3% of pretax income in 2006, and 35.7% in 2005.  The primary causes of the decrease are a change in the federal tax rate applied to the deferred tax assets as described above, and a decrease in state income taxes.  The decrease in state tax expense is a result of amending the 2005 and 2004 Florida state income tax returns to apportion interest income between states in which we operate.  These amended returns resulted in additional state tax refund amounts recorded in the current period related to prior years.  These decreases were partially offset by other increases, including a provision to return adjustment.

59

Net income increased $2.3 million or 13.7% in 2007 as compared to 2006.   A decrease in loss and LAE of $37.1 million, a decrease in policy acquisition expenses of $8.4 million and an increase in net investment income of $2.6 million, offset by a decrease in net premiums earned of $37.1 million, an increase in underwriting and other expenses of $3.8 million, an increase in federal and state income taxes of $3.2 million, and a increase in dividends to policyholders of $1.4 million, primarily comprised the change.

Net income decreased $0.2 million or 1.3% in 2006 as compared to 2005.   Increases in net premiums earned and net investment income of $9.9 million and $6.7 million respectively, and a decrease in underwriting and acquisition expenses of $4.2 million, were offset by an increases in loss and loss adjustment expenses and dividends of $20.0 million and $1.3 million, respectively.

Return on Equity - Our annualized return on equity for the years ended December 31, 2007, 2006 and 2005 is 12.7%, 15.7% and 25.8%, respectively.

Liquidity and Capital Resources

We are a holding company and our insurance subsidiaries are the primary source of funds for our operations.  We have historically received dividend payments solely from Pinnacle Administrative Company (“Pinnacle Administrative”) and Pinnacle Benefits, Inc (“Pinnacle Benefits”).  These dividend payments are funded by fee payments under service agreements between Pinnacle Administrative and Pinnacle Benefits and our insurance subsidiaries.  Fee payments under the service agreements are subject to review by the Florida OIR, as are dividend payments by our insurance subsidiaries.  There are no restrictions on the payment of dividends by our non-insurance subsidiaries, Pinnacle Administrative, Pinnacle Benefits and AmSERV, Inc., other than customary state corporation laws regarding solvency.  The cash requirements of these non-insurance subsidiaries are primarily for the payment of salaries, employee benefits and other operating expenses.

Liquidity

The primary source of cash flow for Pinnacle Benefits and Pinnacle Administrative is service fees paid by our insurance subsidiaries.  Our insurance subsidiaries’ primary cash sources are insurance premiums, investment income and the proceeds from the sale, redemption or maturity of invested assets.  The cash requirements of the insurance subsidiaries are primarily for the payment of losses and LAE, dividends, guaranty fund and second-injury fund assessments, commissions, reinsurance premiums, premium taxes, services fees, interest on surplus notes and purchase of investment securities.  We maintain cash reserves to meet our obligations that comprise current outstanding loss and LAE, reinsurance premiums and administrative expenses.  Due to the uncertainty regarding the timing and amount of settlement of unpaid losses, the liquidity requirements of the insurance subsidiaries vary.  The insurance subsidiaries’ investment guidelines and investment portfolio take into account historical payout patterns.  If loss payments were to accelerate beyond our ability to fund them from current operating cash flows, we would need to liquidate a portion of our investment portfolio and/or arrange for financing.  For example, several catastrophic injuries occurring in a relatively short period of time could cause such a liquidity strain.  Our insurance subsidiaries have historically purchased excess reinsurance to mitigate the effects of large losses and to help stabilize liquidity.  These reinsurance agreements require initial outlays of reinsurance premiums, based on premiums written, which is in advance of our receipt of cash premiums, and the reinsurers reimburse us after losses and LAE are paid by us.  These reinsurance agreements exclude coverage for losses arising out of terrorism and nuclear, biological and chemical attacks.

Capital Resources

We have historically met our cash requirements and financed our growth principally from operations, the proceeds of borrowings, investment income and in 2006 the initial public offering completed February 10, 2006 for $48.0 million.  Cash flow is summarized in the table below.

60

	For the Twelve Months Ended December 31,
	2007			2006			2005
Cash and cash equivalents provided by (used in):
Operating activities	$	21,124		$	54,154		$	83,602
Investing activities		916			(98,160	)		(108,877	)
Financing activities		(6,608	)		48,176			(1,789	)
Change in cash and cash equivalents	$	15,432		$	4,170		$	(27,064	)

In October 2000, we entered into a credit facility with AmSouth Bank (now Regions Bank) under which we borrowed $11.3 million.  In April 2003, the loan was amended and the aggregate borrowing increased to $12.5 million.  The loan calls for monthly payments of principal and of interest at the 30-day London Interbank Offered Rate (“LIBOR”) rate plus a margin.  At December 31, 2006, the principal balance of the loan was $4.5 million and the annual interest rate was 6.83%.  The loan contains various restrictive covenants generally pertaining to levels of indebtedness and limitations on incurrence of capital expenditures.  Additionally, our insurance subsidiaries must comply with financial covenant restrictions, including ratios of leverage, debt service, current maturity coverage, net premiums written to surplus and risk based capital.  The loan is collateralized by $25.5 million of internal surplus notes issued to us by our insurance subsidiaries and the stock of AmCOMP Preferred.  The surplus notes bear interest, in the case of $10.0 million principal amount, at an annual rate of 100 basis points in excess of the prime rate, in the case of $10.5 million principal amount, at an annual rate of 450 basis points in excess of LIBOR, and in the case of $5.0 million principal amount, at an annual rate of 10.0%.  Interest and principal payments on the surplus notes require prior approval by the Florida OIR.

In 2004, AmCOMP Preferred issued surplus notes to third parties as part of three securitizations of pooled surplus notes of insurance companies.  The following table summarizes the terms of these surplus notes

Issue Date	Principal Amount	Maturity Date	Optional Redemption by AmCOMP Preferred On or After	Interest Rate	Frequency of Interest Payments
April 29, 2004	$10.0 million	April 29, 2034	April 30, 2009	Three-month LIBOR plus 425 basis points	Quarterly
May 26, 2004	$12.0 million	May 24, 2034	May 24, 2009	Three-month LIBOR plus 425 basis points	Quarterly
September 14, 2004	$10.0 million	December 15, 2034	December 15, 2009	Three-month LIBOR plus 405 basis points	Quarterly

For statutory purposes, these surplus notes are considered as a component of AmCOMP Preferred’s policyholders’ surplus.  For GAAP and income tax purposes, the surplus notes are considered debt.  The issuance of the surplus notes required Florida OIR approval.  Additionally, all future principal and interest payments require the approval of the Florida OIR.

On September 4, 2007, the Company obtained a commitment for a $30 million secured non-revolving line of credit from Regions Bank.  Under the terms of the commitment for the loan, the interest rate is a floating rate of 160 basis points over LIBOR.  Advances under the commitment will be available for up to two years from the date of closing.  Fundings under the commitment will have a seven-year fully amortizing term and can be repaid at any time without penalty.  The loan has no fees associated with it other than a ¼% non-usage fee per annum pro-rated for the amount of loan principal which is not drawn down by AmCOMP.  Any advances under the line of credit are to be collateralized by the stock of a wholly-owned insurance subsidiary of AmCOMP and certain intercompany surplus notes.  The loan is designated for strategic and general corporate purposes.  At AmCOMP’s request Regions Bank extended the closing date of the commitment through June 15, 2008.

61

We consummated our initial public offering on February 15, 2006 with the sale by the Company of 6,000,000 shares of common stock.  Our net proceeds, after deducting underwriting discounts and commissions and other expenses relating to the offering, were approximately $48.0 million.  We utilized substantially all of the proceeds to further capitalize our insurance subsidiaries which enables us to underwrite additional insurance in the states where we currently operate.  The balance of the net proceeds we received from the initial public offering are being used for working capital and general corporate purposes.

Regulation

Our insurance subsidiaries are required to maintain certain minimum amounts of capital as established by the Florida OIR pursuant to risk-based capital standards of the NAIC.  These standards require the computation of a risk-based capital amount, which is then compared to the insurance subsidiaries’ actual total adjusted capital.  The computation of risk-based capital involves applying various financial factors to address four primary risks: asset risk, insurance underwriting risk, credit risk and off-balance sheet risk.  The standards provide for regulatory intervention when the ratio of an insurance company’s total adjusted capital to its risk-based capital is below certain levels.  For further information, see the discussion of risk-based capital under “Business—Regulation.”

Our insurance subsidiaries are also subject to statutory insurance laws and regulations that limit the amount of dividends or distributions that may be paid by an insurance company to its stockholders.  Pursuant to the Florida Insurance Code, our insurance subsidiaries may not, without the prior approval of the Florida OIR, pay to us dividends or other distributions of cash or property, the total fair market value of which generally exceeds the larger of 10% of surplus, as of the preceding December 31st or 100% of its prior year’s net income, not including realized capital gains, or net investment income plus a three-year carryforward.  At December 31, 2007, our insurance subsidiaries were authorized to pay approximately $17.6 million in dividends without additional regulatory approval.  No dividends were paid by the insurance subsidiaries during 2007, 2006 or 2005.

Effective January 1, 2006, the Illinois Department of Insurance removed the $9.0 million cap premium writings requirement previously applicable in that state.  Historically, the regulatory authorities’ primary concern was the capitalization of AmCOMP Assurance and its reliance on an inter-company pooling arrangement with AmCOMP Preferred, which is not licensed to do business in those states.  Should we choose to expand our operations in Illinois, we would be required to negotiate an increase in the current limit on premium writing and there is no assurance that we would be able to do so.  In North Carolina, we were subject to a $12.0 million cap on written premiums during the 2002-2004 periods.  Effective July 6, 2005, the cap was removed.

Reinsurance

We have historically operated with a limited amount of capital and, as a result, have made extensive use of the reinsurance market to maintain our net exposures within our capital resources.  We have ceded premiums and losses to unaffiliated insurance companies under quota share, excess of loss and catastrophe reinsurance agreements.  We evaluate the financial condition of our reinsurers and monitor various credit risks to minimize our exposure to losses from reinsurer insolvencies.  However, we remain obligated for amounts ceded irrespective of whether the reinsurers meet their obligations.  We ceded a high percentage of our premiums and the associated losses prior to July 1, 2004.  A failure of one of our reinsurers to pay could have a significant adverse effect on our capital and our financial condition and results of operations.  At December 31, 2007 and 2006, reinsurance recoverables on paid and unpaid losses and LAE were $67.8 million and $75.4 million, respectively.  Our largest recoverable from a single reinsurer as of December 31, 2007 was $32.2 million owed to us by Continental Casualty Company, a subsidiary of CNA Financial Corporation, representing 20.3% of our total stockholders’ equity as of that date.  Of the $32.2 million, $1.4 million was the current recoverable on paid losses.  The balance of $30.8 million is recoverable from Continental Casualty Company on losses that may be paid by us in the future and therefore is not currently due.  The unpaid losses will become current as we pay the related claimants.

As a result of raising $32.0 million from surplus notes issued by one of our insurance subsidiaries, we eliminated the need for quota share reinsurance on new and renewal business since July 1, 2004.  In addition, we increased our retention in our excess of loss reinsurance program to $2.0 million in 2005 and thereafter.

62

Investments

Our insurance subsidiaries employ an investment strategy that emphasizes asset quality to minimize the credit risk of our investment portfolio.  As economic conditions change, our insurance subsidiaries’ investment committees recommend strategy changes and adjustments to our investment portfolio.  We have maintained a high portion of our portfolio in short-term investments recently to mitigate the risk of falling prices for fixed maturity securities if rates should rise.  Changes in interest rates impact our investment income and cause fluctuations in the carrying values of the majority of our investments (these changes are reflected as changes in stockholders’ equity, net of tax).

We may sell securities due to changes in the investment environment, our expectation that fair value may deteriorate further, our desire to reduce our exposure to an issuer or an industry and changes in the credit quality of the security. In addition, depending on changes in prevailing interest rates, our investment strategy may shift toward long-term securities, and we may adjust that portion of our investment portfolio that is held-to-maturity rather than available-for-sale. Except for recognizing other-than-temporary impairments, our held-to-maturity portfolio is carried at amortized cost because we have the ability and intent to hold those securities to maturity. As of December 31, 2007 and 2006, 77.9% and 81.9%, respectively, of our entire portfolio was classified as available-for-sale.

The amount and types of investments that may be made by our insurance subsidiaries are regulated under the Florida Insurance Code and the rules and regulations promulgated by the Florida OIR.  As of December 31, 2007 and December 31, 2006, our insurance subsidiaries’ combined portfolio consisted entirely of investment grade fixed-income securities.  As of December 31, 2007, our investments (excluding cash and cash equivalents) had an average duration of 4.1 years, and the bond portfolio was heavily weighted toward short- to intermediate-term securities.

Our insurance subsidiaries employ Regions Bank to act as their independent investment advisor.  Regions Bank follows the insurance subsidiaries’ written investment guidelines based upon strategies approved by our insurance subsidiaries’ boards of directors.  Our insurance subsidiaries have no investments in common stock (other than AmCOMP Preferred’s investment in AmCOMP Assurance and certain institutional money market accounts), preferred stock, real estate, asset-backed securities (other than mortgage-backed) or derivative securities.  Regions Bank has discretion to enter into investment purchase transactions within our insurance subsidiaries’ investment guidelines.  In the case of sales of securities prior to maturity or the acquisition of securities that differ from the types of securities already present in the portfolio, Regions Bank is required to obtain approval from our insurance subsidiaries’ executive officers, who report regularly to our insurance subsidiaries’ investment committees, prior to executing the transactions.  Regions Bank’s fee is based on the amount of assets in the portfolio and is not dependent upon investment results or portfolio turnover.

The table below contains information concerning the composition of our investment portfolio at December 31, 2007:

	Carrying Amount (1)		Yield to Maturity			Percentage of Carrying Amount (1)
	(Dollars in thousands)
Bonds:(2)
U.S. Treasury securities	$	24,200		3.5	%		5.3	%
Agencies		37,589		5.1			8.3
Municipalities(3)		81,264		4.9			17.9
Corporate “A” rated and above		138,673		5.0			30.5
Corporate “BBB”/”Baa” rated		21,508		5.3			4.7
Mortgage-backed securities		120,274		5.4			26.5
Total Bonds	$	423,508		5.0	%		93.2	%
Cash and cash equivalents		30,691		4.5			6.8
Total	$	454,199		5.0	%		100.0	%

(1) Carrying amount is amortized cost for bonds held-to-maturity.  Carrying value is market value for bonds available-for-sale.  As of December 31, 2007, $329.8 million of our bonds was classified as available-for-sale and $93.7 million were classified as held-to-maturity.

63

(2) Standard & Poor’s highest rating is “AAA” and signifies that a company’s capacity to meet its financial commitment on the obligation is extremely strong, followed by “AA” (very strong), “A” (strong) and “BBB” (adequate).  Ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.  Moody’s Investors Service, Inc.’s highest rating is “Aaa” (best quality), followed by “Aa” (high quality), “A” (strong) and “Baa” (adequate).  For investments with split ratings, the higher rating has been used.

(3) The municipal bonds’ yields to maturity have been shown on a tax-equivalent basis.  The tax impact was 1.25% on the yield to maturity for municipal bonds and 0.2% on the yield to maturity for total cash and investments.

The table below sets forth the maturity profile of our bond portfolio at amortized cost and fair market values as of December 31, 2007:

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Years to maturity (1):
One or less	$	49,111	$	48,917		—		—
After one through five		127,712		127,828		—		—
After five through ten		107,762		108,420		—		—
After ten		16,960		18,069		—		—
Mortgage-backed securities		26,111		26,613		93,661		94,414
Total	$	327,656	$	329,847	$	93,661	$	94,414

 (1) Based on the stated maturities of the securities.  Actual maturities may differ as obligors may have the right to call or prepay obligations.

We continuously monitor our portfolio to preserve principal values whenever possible.  An investment in a fixed maturity security is impaired if its fair value falls below its book value.  All securities in an unrealized loss position are reviewed to determine whether the impairment is other-than-temporary.  Factors considered in determining whether a decline is considered to be other-than-temporary include length of time and the extent to which fair value has been below book value, the financial condition and near-term prospects of the issuer, and our ability and intent to hold the security until its expected recovery.

64

The following table summarizes, for all fixed maturity securities in an unrealized loss position at December 31, 2007, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

	Fair Value		Unrealized Losses			Number of Issues
	(In thousands)
Less than 12 months:
U.S. Treasury securities	$	-	$	-			-
Agency		-		-			-
Municipalities		-		-			-
Corporate debt securities		13,348		(75	)		6
Mortgage-backed securities		10,814		(49	)		2
Total	$	24,162	$	(124	)		8
Greater than 12 months:
U.S. Treasury securities	$	4,887	$	(17	)		6
Agency		9,001		(35	)		6
Municipalities		33,555		(101	)		24
Corporate debt securities		88,476		(1,026	)		60
Mortgage-backed securities		17,320		(273	)		13
Total	$	153,239	$	(1,452	)		109
Total fixed maturity securities:
U.S. Treasury securities	$	4,887	$	(17	)		6
Agency		9,001		(35	)		6
Municipalities		33,555		(101	)		24
Corporate debt securities		101,824		(1,101	)		66
Mortgage-backed securities		28,134		(322	)		15
Total fixed maturity securities	$	177,401	$	(1,576	)		117

At December 31, 2007, there were no investments in fixed maturity securities with individual material unrealized losses.  One other-than-temporary impairment totaling $0.1 million and three other-than-temporary impairments totaling approximately $0.2 million were recorded on our investments during the years ended December 31, 2007 and 2006, respectively.  All the unrealized losses on the fixed maturity securities are interest rate related.

We believe our future cash flow generated by operations, and our cash and investment will be sufficient to fund continuing operations, service our outstanding obligations and provide for required capital expenditures for at least the next 12 months.

Litigation

Prior to 2001, no material amounts due from reinsurers were written off as uncollectible, because most of our reinsurance was recoverable from large, well-capitalized reinsurance companies.  On October 3, 2001, the Commonwealth Court of Pennsylvania approved an Order of Liquidation for Reliance Insurance Company in response to a petition from the Pennsylvania Department of Insurance.  In 2001, we wrote off all balances due from Reliance.  The write off resulted in an increase in underwriting and other expenses of approximately $8.3 million.  We are continuing to pursue the collection of amounts recoverable from Reliance in its liquidation proceeding.

65

AmCOMP and both of our insurance subsidiaries are defendants in an action commenced in Florida by the Insurance Commissioner of Pennsylvania, acting in its capacity as liquidator of Reliance Insurance Company.  The complaints in those actions allege that preferential payments were made to us by Reliance under the formerly existing reinsurance agreement with the insurance subsidiaries and seek damages in the amount of approximately $2.3 million.  We have answered the complaint and we expect the matter to be scheduled for trial.  We believe that we have multiple factual and legal defenses to the claim made in this action, including, but not limited to a right of recoupment related to the statement of claim filed by us in the Reliance liquidation proceeding for the recovery of approximately $7.8 million under the reinsurance agreement.  However, on November 14, 2007 the trial court in Florida granted the plaintiff liquidator’s motion for partial summary judgment, finding that the approximate $2.3 million in payments were “preferential” under Pennsylvania law.  This order is not yet a final, appealable order under Florida law.  There are a number of remaining issues, including AmCOMP’s affirmative defenses, which must be determined by the court before a final order or judgment could be entered.  Although the ultimate results of these legal actions and related claims (including any future appeals) cannot presently be determined, the Company had accrued a $1.2 million liability as of each of December 31, 2007 and 2006, related to those matters.

Other

In August 1998, in an effort to expand its customer base, AmCOMP began selling insurance policies for a third party insurance company.  This arrangement included insurance policies with effective dates of August 1, 1998 through November 1, 2000.  Pinnacle Administrative performed marketing, underwriting, loss prevention and other administrative functions, and Pinnacle Benefits provided claim adjusting services, including the payment of claims, related to these policies.  Included in other assets at December 31, 2007 is approximately $2.1 million in loss and LAE payments on the administered business that is currently due from the third-party insurer.  Management is currently in discussion with the insurer regarding payment, and expects to recover the balance due.

Contractual Obligations and Commitments

The following table identifies our long-term debt and contractual obligations as of December 31, 2007:

	Payment Due By Period
	Total		Less Than 1 Year		1-3 Years		4-5 Years		More Than 5 Years
	(Dollars in thousands)
Long Term Debt Obligations(1)	$	114,642	$	4,947	$	8,657	$	5,859	$	95,179
Capital Leases		796		340		456		–		–
Operating Leases		7,157		2,563		3,214		1,219		161
Loss Reserves(2)		324,224		107,266		92,076		19,333		105,549
FIN 48 Income Tax Obligations		2,136		504		–		–		1,632
Total Contractual Obligations	$	448,955	$	115,620	$	104,403	$	26,411	$	202,521

_______________________

(1) Long-Term Debt Obligations reflect payments for the principal and estimated interest expense that is based on variable LIBOR rates plus a margin.  The estimated interest expense was based on the contractual obligations of the debt as of December 31, 2007.  The rates ranged from 6.83% to 9.28%.

(2) Estimated pay out dates for the loss reserves are determined in the actuarial process.  As a result, our calculation of loss reserve payments due by period is subject to the same uncertainties associated with determining the level of reserves and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid.  For a discussion of our reserving process, see “Business—Loss and Loss Adjustment Expense Reserves.”  Actual payments of losses and LAE by period will vary, perhaps materially, from the above table to the extent that current estimates of loss reserves vary from actual ultimate claims amounts and as a result of variations between expected and actual payout patterns.  See “Risk Factors—Our loss reserves are based on estimates and may be inadequate to cover our actual losses” for a discussion of the uncertainties associated with estimating loss reserves.

66

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Effects of Inflation

The effects of inflation could impact our financial statements and results of operations.  Our estimates for losses and loss expenses include assumptions about future payments for closure of claims and claims handling expenses, such as medical treatments and litigation costs.  To the extent inflation causes these costs to increase above reserves established, we will be required to increase reserves for losses and loss expenses with a corresponding reduction in our earnings in the period in which the deficiency is identified.  We consider inflation in the reserving process by reviewing cost trends and our historical reserving results.  Additionally, an actuarial estimate of increased costs is considered in setting adequate rates, especially as it relates to medical and hospital rates where historical inflation rates have exceeded general inflation rates.  We are able to mitigate the effects of inflation on medical costs due to the fee schedules imposed by most of the states where we do business and the utilization of preferred provider networks.  However, providers are not obligated to invoice us per the fee schedule or the negotiated rate.  We review medical bills for appropriate coding and pay the lower of the negotiated or fee schedule rate.  Disputes are resolved by negotiation.

Fluctuations in rates of inflation also influence interest rates, which in turn impact the market value of our investment portfolio and yields on new investments.  Operating expenses, including payrolls, are impacted to a certain degree by the inflation rate.

Recent Accounting Pronouncements

In July 2006, FASB issued FIN 48. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Interpretation establishes a “more likely than not” recognition threshold for tax benefits to be recognized in the financial statements.  The “more likely than not” determination is to be based solely on the technical merits of the position.  This interpretation was adopted by the Company on January 1, 2007.  As of the adoption date and as of December 31, 2007, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. SFAS No. 157 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of this standard.

Statement of Position (“SOP”) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts, issued September 2005, became effective January 1, 2007. SOP 05-1 provides guidance on accounting for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The adoption of SOP 05-01 did not have a material impact upon adoption.

67

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which permits entities to elect to measure many financial instruments and certain other items at fair value.  Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at the initial recognition of the asset or liability or upon a re-measurement event that gives rise to the new-basis of accounting. All subsequent changes in fair value for that instrument are reported in earnings.  SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in other accounting standards.  SFAS No. 159 is effective as of January 1, 2008.  The Company is currently evaluating the impact of this standard.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.   SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, SFAS No. 141(R) will be applied by the Company to business combinations occurring on or after January 1, 2009.

Item 7A.  Quantitative and Qualitative Disclosure about Market Risk

We believe we are principally exposed to two types of market risk: interest rate risk and credit risk.

Interest Rate Risk

Investments.  Our investment portfolio consists primarily of debt securities, of which 77.9% were classified as available-for-sale as of December 31, 2007.  The primary market risk exposure to our debt securities portfolio is interest rate risk, which we strive to limit by managing duration.  As of December 31, 2007, our investments (excluding cash and cash equivalents) had an average duration of 4.1 years.  Interest rate risk includes the risk from movements in the underlying market rate and in the credit spread of the respective sectors of the debt securities held in our portfolio.  The fair value of our fixed maturity portfolio is directly impacted by changes in market interest rates.  As interest rates rise, the market value of our fixed-income portfolio falls, and the converse is also true.  We expect to manage interest rate risk by instructing our investment manager to select investments consistent with our investment strategy based on characteristics such as duration, yield, credit risk and liquidity.

Credit Facility and Third Party Surplus Notes.  Our exposure to market risk for changes in interest rates also relates to the interest expense of variable rate debt under our bank credit facility and our insurance subsidiaries’ surplus notes issued to unaffiliated third parties.  The interest rates we pay on these obligations increase or decrease with changes in LIBOR.

Sensitivity Analysis.  Sensitivity analysis is a measurement of potential loss in future earnings, fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates and other market rates or prices over a selected time.  In our sensitivity analysis model, we select a hypothetical change in market rates that reflects what we believe are reasonably possible near-term changes in those rates.  The term “near-term” means a period of time going forward up to one year from the date of the consolidated financial statements.  Actual results may differ from the hypothetical change in market rates assumed in this disclosure, especially since this sensitivity analysis does not reflect the results of any action that we may take to mitigate such hypothetical losses in fair value.

In this sensitivity analysis model, we use fair values to measure our potential loss.  The sensitivity analysis model includes fixed maturities and cash equivalents.

For invested assets, we use modified duration modeling to calculate changes in fair values.  Durations on invested assets are adjusted for call, put, and interest rate reset features.  Durations on tax-exempt securities are adjusted for the fact that the yield on such securities is less sensitive to changes in interest rates compared to Treasury securities.  Invested asset portfolio durations are calculated on a market value weighted basis, including accrued investment income, using holdings as of December 31, 2007.

68

The following table summarizes the estimated change in fair value on our fixed maturity portfolio, including cash equivalents based on specific changes in interest rates:

Change in Interest Rates	Estimated Increase (Decrease) in Fair Value			Estimated Percentage Increase (Decrease) in Fair Value
December 31, 2007:	(Dollars in thousands)
300 basis point rise	$	(45,095	)		(10.7	%)
200 basis point rise		(29,401	)		(7.0	%)
100 basis point rise		(13,977	)		(3.3	%)
50 basis point decline		5,843			1.4	%
100 basis point decline		11,130			2.7	%
Change in Interest Rates	Estimated Increase (Decrease) in Fair Value			Estimated Percentage Increase (Decrease) in Fair Value
December 31, 2006:	(Dollars in thousands)
300 basis point rise	$	(42,077	)		(10.1	%)
200 basis point rise		(28,068	)		(6.8	%)
100 basis point rise		(13,819	)		(3.3	%)
50 basis point decline		6,298			1.5	%
100 basis point decline		12,296			3.0	%

The sensitivity analysis model used by us produces a predicted pre-tax loss in fair value of market-sensitive instruments of $13.8 million or 3.3% based on a 100 basis point increase in interest rates as of December 31, 2007.  This loss amount only reflects the impact of an interest rate increase on the fair value of our fixed maturities and cash equivalents, which constituted approximately 93.2% of our total invested assets as of December 31, 2007.

Interest expense would also be affected by a hypothetical change in interest rates.  As of December 31, 2007, we had      $36.5 million in variable rate debt obligations.  Assuming this amount remains constant, a hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $0.4 million, a 200 basis point increase would increase interest expense by approximately $0.7 million and a 300 basis point increase would increase interest expense by approximately $1.1 million.  As of December 31, 2006 we had $38.3 million in variable rate debt obligations.  Assuming this amount remained constant, a hypothetical 100 basis point increase in interest rates would have increased annual interest expense by approximately $0.4 million, a 200 basis point increase would increase interest expense by approximately $0.8 million and a 300 basis point increase would increase interest expense by approximately $1.1 million.

With respect to investment income, the most significant assessment of the effects of hypothetical changes in interest rates on investment income would be based on Statement of Financial Accounting Standards No. 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases (“FAS 91”), issued by the FASB, which requires amortization adjustments for mortgage backed securities.  The rates at which the mortgages underlying mortgage backed securities are prepaid, and therefore the average life of mortgage backed securities, can vary depending on changes in interest rates (for example, mortgages are prepaid faster and the average life of mortgage backed securities falls when interest rates decline).  The adjustments for changes in amortization, which are based on revised average life assumptions, would have an impact on investment income if a significant portion of our mortgage backed securities holdings had been purchased at significant discounts or premiums to par value.  As of December 31, 2007, the par value of our mortgage backed securities holdings was $120.0 million.  Amortized cost divided by par value equates to an average price of 99.8% of par.  Since some of our mortgage backed securities were purchased at a premium or discount that is a significant percentage of par, a FAS 91 adjustment could have a significant effect on investment income.

69

However, given the current interest rate environment, which has exhibited higher rates resulting in lower values for fixed maturity securities over the last few years and the slow down in the housing market and the overall economy during 2007, the possibility of additional significant declines such that prepayment speeds are significantly impacted is unlikely.  The mortgage backed securities portion of the portfolio totaled approximately 28.4% of total investments as of December 31, 2007.  Of this total, 100% was in agency pass through securities.

Credit Risk

Investments.  Our debt securities portfolio is also exposed to credit risk, which we attempt to manage through issuer and industry diversification.  We regularly monitor our overall investment results and review compliance with our investment objectives and guidelines.  Our investment guidelines include limitations on the minimum rating of debt securities in our investment portfolio, as well as restrictions on investments in debt securities of a single issuer.  As of December 31, 2007 and 2006, all of the debt securities in our portfolio were rated investment grade by the NAIC, Standard & Poor’s, Moody’s and Fitch.

Reinsurance.  We are subject to credit risk with respect to our reinsurers.  Although our reinsurers are liable to us to the extent we cede risk to them, we are ultimately liable to our policyholders on all risks we have reinsured.  As a result, reinsurance agreements do not limit our ultimate obligations to pay claims to policyholders and we may not recover claims made to our reinsurers.

70

Item 8.  Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

	Page
Financial Statements as of December 31, 2007 and 2006 and for the three years ended December 31, 2007:
Reports of Independent Registered Public Accounting Firms	72-73
Consolidated Balance Sheets	74
Consolidated Statements of Operations	75
Consolidated Statements of Changes in Stockholders’ Equity	76
Consolidated Statements of Cash Flows	77
Notes to Consolidated Financial Statements	78-100

71

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheet of AmCOMP Incorporated and Subsidiaries (the "Company") as of December 31, 2007 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year then ended.  Our audit also included the financial statement schedules listed in the index at Item 15.  We also have audited the Company's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audit of the financial statements included 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.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances.  We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed 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.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, 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.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AmCOMP Incorporated and Subsidiaries as of December 31, 2007, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 As disclosed in Note 19, on January 10, 2008 the Company announced that it had executed a definitive agreement to be acquired by Employers Holdings, Inc., an unrelated insurance holding corporation.  The transaction, which is subject to regulatory approvals, is expected to be completed during the second quarter of 2008.

/s/ Johnson Lambert & Co., LLP

Certified Public Accountants

Jacksonville, Florida

February 28, 2008, except for Note 19,

as to which the date is March 4, 2008

72

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

AmCOMP Incorporated

We have audited the accompanying consolidated balance sheet of AmCOMP Incorporated and subsidiaries (the "Company") as of December 31, 2006, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2006.  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 AmCOMP Incorporated and subsidiaries at December 31, 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, 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

Certified Public Accountants

Fort Lauderdale, Florida

April 2, 2007

73

AmCOMP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 AND 2006

(In thousands)

	December 31,
ASSETS	2007			2006
Investments:
Fixed maturity securities available-for-sale at fair value (amortized cost of $327,656 in 2007 and $349,487 in 2006)	$	329,847		$	345,318
Fixed maturity securities held-to-maturity at amortized cost (fair value of $94,414 in 2007 and $75,933 in 2006)		93,661			76,198
Total investments		423,508			421,516
Cash and cash equivalents		30,691			15,259
Accrued investment income		4,721			5,120
Premiums receivable—net		88,486			106,270
Assumed reinsurance premiums receivable		1,809			1,822
Reinsurance recoverable:
On paid losses and loss adjustment expenses		1,454			3,064
On unpaid losses and loss adjustment expenses		66,353			72,296
Prepaid reinsurance premiums		1,215			3,326
Deferred policy acquisition costs		19,116			20,749
Property and equipment—net		3,352			2,705
Income tax recoverable		­962			3,102
Deferred income taxes—net		19,889			21,613
Goodwill—net		1,260			1,260
Other assets		6,347			6,395
TOTAL	$	669,163		$	684,497
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Policy reserves and policyholders’ funds:
Unpaid losses and loss adjustment expenses	$	324,224		$	334,363
Unearned and advance premiums		102,672			115,218
Policyholder retention dividends payable		10,276			8,504
Total policy reserves and policyholders’ funds		437,172			458,085
Reinsurance payable		622			3,774
Accounts payable and accrued expenses		30,868			39,416
Notes payable		36,464			38,250
Income tax payable		1,441			—
Other liabilities		4,419			5,684
Total liabilities		510,986			545,209
STOCKHOLDERS’ EQUITY:
Common stock (par value $.01; authorized shares  45,000; 15,922 in 2007 and  15,893 in 2006 issued ; 15,290 in 2007 and 15,758 in 2006 outstanding)		159			158
Additional paid-in capital		75,392			73,952
Retained earnings		86,826			67,990
Accumulated other comprehensive income (loss) (net of deferred taxes of ($799) in 2007 and $1,553 in 2006)		1,392			(2,613	)
Treasury stock (631 shares in 2007 and 135 in 2006)		(5,592	)		(199	)
Total stockholders’ equity		158,177			139,288
TOTAL	$	669,163		$	684,497

See accompanying notes.

74

AmCOMP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

(In thousands, except per share amounts)

	2007			2006			2005
REVENUE:
Net premiums earned	$	229,349		$	266,456		$	256,603
Net investment income		20,102			17,461			10,798
Net realized investment losses		(473	)		(307	)		(385	)
Other income		127			333			285
Total revenue		249,105			283,943			267,301
EXPENSES:
Losses and loss adjustment expenses		126,562			163,670			143,663
Dividends to policyholders		11,334			9,926			8,612
Underwriting and acquisition expenses		77,194			81,722			85,955
Interest expense		3,717			3,807			2,960
Total expenses		218,807			259,125			241,190
Income before income taxes		30,298			24,818			26,111
Income tax expense		11,462			8,256			9,326
Net income	$	18,836		$	16,562		$	16,785
Earnings per common share—basic	$	1.20		$	1.15		$	3.13
Earnings per common share—diluted	$	1.20		$	1.11		$	1.76
Weighted average number of common shares outstanding
Basic		15,647			14,452			5,367
Diluted		15,656			14,931			9,562

See accompanying notes.

75

AmCOMP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

(In thousands)

	Common Stock		Convertible Preferred Stock Series A			Additional Paid-In Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
BALANCE AT DECEMBER 31, 2004		54		23,098			536		(195	)		34,643		199			58,335
Net income		—		—			—		—			16,785		—			16,785
Unrealized loss on investments (net of tax benefit of $1,789)		—		—			—		—			—		(3,135	)		(3,135	)
Comprehensive income		—		—			—		—			—		—			13,650
Purchase of treasury stock		—		—			—		(4	)		—					(4	)
BALANCE AT DECEMBER 31, 2005		54		23,098			536		(199	)		51,428		(2,936	)		71,981
Net income		—		—			—		—			16,562		—			16,562
Unrealized gain on investments (net of tax expense of $121)		—		—			—		—			—		323			323
Comprehensive income		—		—			—		—			—		—			16,885
Conversion of Series A Preferred into Common Stock		42		(23,098	)		23,056		—			—		—			—
Stock issued during initial public offering (net of offering costs of $2,341)		60		—			47,912		—			—		—			47,972
Stock option compensation expense		—		—			545		—			—		—			545
Stock option exercise		2		—			1,826		—			—		—			1,828
Tax benefit on stock options		—		—			77		—			—		—			77
BALANCE AT DECEMBER 31, 2006	$	158	$	—		$	73,952	$	(199	)	$	67,990	$	(2,613	)	$	139,288
Net income		—		—			—		—			18,836		—			18,836
Unrealized gain on investments (net of tax expense of $2,356)		—		—			—		—			—		4,005			4,005
Comprehensive income		—		—			—		—			—		—			22,841
Stock option compensation expense		—		—			702		—			—		—			702
Stock option exercise		1		—			723		88			—		—			812
Tax benefit on stock options		—		—			15		—			—		—			15
Purchase of treasury stock (560 shares)		—		—			—		(5,481	)		—		—			(5,481	)
BALANCE AT DECEMBER 31, 2007	$	159	$	—		$	75,392	$	(5,592	)	$	86,826	$	1,392		$	158,177

See accompanying notes.

76

AmCOMP INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

(In thousands)

	2007			2006			2005
OPERATING ACTIVITIES:
Net income	$	18,836		$	16,562		$	16,785
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,626			1,711			2,144
Amortization of investment premiums/discounts		1,616			2,466			3,069
Excess tax benefits from stock option exercise		(41	)		(162	)		—
Stock option expense		702			545			—
Provision for deferred income taxes		(632	)		(859	)		(1,434	)
Net realized losses on investments		473			307			385
­Loss on sale of property and equipment		18			20			—
Policy acquisition costs deferred		(42,836	)		(50,746	)		(47,673	)
Policy acquisition costs amortized		44,469			49,410			42,955
Change in operating assets and liabilities:
Accrued investment income		399			(1,128	)		(962	)
Premiums receivable		17,784			(1,748	)		(2,884	)
Reinsurance balances		6,525			11,846			41,888
Other assets		48			1,606			(2,015	)
Unpaid losses and loss adjustment expenses		(10,139	)		24,506			12,159
Unearned and advance premiums and policyholder deposits		(12,546	)		(366	)		1,339
Policyholder retention dividends payable		1,772			1,868			351
Accounts payable and accrued expenses		(8,548	)		851			13,464
Income tax recoverable/payable		3,596			(1,859	)		1,959
Other liabilities		(1,998	)		(676	)		2,072
Net cash provided by operating activities		21,124			54,154			83,602
INVESTING ACTIVITIES:
Securities available-for-sale:
Purchases		(79,683	)		(98,578	)		(152,524	)
Sales and maturities		99,456			46,369			63,531
Securities held-to-maturity:
Purchases		(30,887	)		(53,687	)		(22,814	)
Redemptions and maturities		13,394			9,504			3,224
Purchases of property and equipment		(1,378	)		(1,795	)		(1,193	)
Sale of property and equipment		14			17			—
Regulatory restricted deposit		—			10			899
Net cash provided by (used in) investing activities		916			(98,160	)		(108,877	)
FINANCING ACTIVITIES:
Proceeds from initial public offering, net of offering costs of $2,341		—			47,972			—
Proceeds from stock option exercise		812			1,828			—
Excess tax benefits from stock option exercise		41			162			—
Payment on capital lease		(194	)		—			—
Payment of note payable		(1,786	)		(1,786	)		(1,785	)
Purchase of treasury stock		(5,481	)		—			(4	)
Net cash (used in) provided by financing activities		(6,608	)		48,176			(1,789	)
Net increase (decrease) in cash and cash equivalents		15,432			4,170			(27,064	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		15,259			11,089			38,153
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	30,691		$	15,259		$	11,089
SUPPLEMENTAL CASH FLOW DATA:
Cash paid—interest	$	3,739		$	3,786		$	2,872
Cash paid—income taxes	$	8,691		$	11,282		$	8,795

See accompanying notes.

77

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

1.  NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization—AmCOMP Incorporated and subsidiaries (collectively, the “Company”) consist of the following entities at December 31, 2007, 2006 and 2005:

· AmCOMP Incorporated (“AmCOMP”), a holding company incorporated on December 28, 1995;

· AmCOMP Preferred Insurance Company (“AmCOMP Preferred”), a wholly owned property and casualty insurance company (formerly known as Pinnacle Assurance Corporation);

· Pinnacle Administrative, Inc. (“Pinnacle Administrative”), a wholly owned administrative services company providing sales and marketing, underwriting, policyholder service, data processing, and accounting services;

· Pinnacle Benefits, Inc. (“Pinnacle Benefits”), a wholly owned claims processing company;

· AmCOMP Assurance Corporation (“AmCOMP Assurance”), a wholly owned property and casualty insurance company; and

· AmServ Incorporated (“AmServ”), a wholly owned company established to provide administrative services to external customers.

The Company’s long-term source of consolidated earnings is principally the income from its workers’ compensation insurance business and investment income from its investment portfolio.  Workers’ compensation insurance provides coverage for the statutorily prescribed benefits that employers are required to provide to their employees injured in the course of employment.  The Company is licensed as an insurance carrier in 25 states and the District of Columbia, but currently focuses its resources in 17 states that it believes provide greater opportunity for near-term profitable growth, with the most significant concentrations in Florida, Wisconsin, Texas, Indiana, Tennessee, and Georgia.

Use of Estimates—The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and the accompanying notes.  Such estimates and assumptions could change in the future as more information becomes known that could affect the amounts reported herein.

Basis of Presentation—The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of AmCOMP, AmCOMP Preferred, Pinnacle Administrative, Pinnacle Benefits, AmCOMP Assurance, and AmServ.  All intercompany accounts and transactions have been eliminated in consolidation.

Investments—Fixed maturity investments are designated at purchase as held-to-maturity or available-for-sale.  Held-to-maturity fixed maturity investments are reported at amortized cost.  Securities classified as available-for-sale are reported at fair value with unrealized appreciation and depreciation, net of deferred taxes, included as a component of accumulated other comprehensive income.  The Company has the intent and ability to hold securities that have fair value below cost until their expected recovery and to hold to maturity securities designated as held-to-maturity.

Single class and multiclass mortgage-backed/asset-backed securities designated held-to-maturity are valued at amortized cost using the interest method including anticipated prepayments.  Changes in anticipated prepayment assumptions are accounted for using the retrospective method.  Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment.

Realized gains and losses on sales of investments are recognized in operations on the specific identification basis.

78

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Debt and equity securities are exposed to various risks such as interest rate, market, and credit risk.  Fair values of securities fluctuate based on the magnitude of changing market conditions; significant changes in market conditions could materially affect portfolio value in the near term.  The Company continually monitors its portfolio for pricing changes, which might indicate potential impairments and performs detailed reviews of securities with unrealized losses based on predetermined criteria.  When a security in the Company’s investment portfolio has an unrealized loss in fair value that is deemed to be other-than-temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the accompanying consolidated statements of operations.  Any future increases in the fair value of securities previously written down are recorded and presented as changes in unrealized gains (losses) as part of accumulated other comprehensive income within stockholders’ equity.

Cash and Cash Equivalents—The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Premiums Receivable—Premiums receivable consist primarily of premium-related balances due from policyholders.  The balance is shown net of the allowance for doubtful accounts.  Receivables due from insureds are written off when a determination has been made that a specific balance will not be collected based upon the collection efforts of Company personnel.  An estimate of amounts that are likely to be written off is established as an allowance for doubtful accounts as of the balance sheet date.  The estimate is primarily comprised of specific balances that are considered probable to be written off after all collection efforts have ceased, as well as historical trends and an analysis of the aging of the receivables.

Deferred Policy Acquisition Costs—To the extent recoverable from future policy revenues, costs that vary with and are primarily related to the production of new and renewal business, including premium tax, commissions, assessments and other general acquisition expenses have been deferred and are amortized over the effective period of the related insurance policies.

Property and Equipment—Property and equipment is stated on the basis of cost net of accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives, generally 3 to 7 years for financial reporting purposes.  Depreciation expense was $1.6 million, $1.7 million and $2.1 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Accumulated depreciation was $12.1 million and $12.8 million at December 31, 2007 and 2006, respectively. During the year ended December 31, 2007, the Company purchased $0.9 million worth on computer equipment under a capital lease.

Goodwill—Goodwill is reviewed for impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred.  The assessment of impairment involves a two step process whereby an initial assessment for potential impairment is performed, followed by a measurement of the amount of impairment, if any.  No impairment has been recorded by AmCOMP in 2007, 2006 or 2005.

Impairment of Long-Lived Assets—The Company’s policy is to record an impairment charge against the balance of a long-lived asset in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”), in the period when it is determined that the carrying amount of the asset may not be recoverable.  This determination is based on an evaluation of such factors as the occurrence of a significant event or a significant change in the environment in which the business assets operate.  The Company considers assets to be impaired when the expected future undiscounted cash flows of the assets are determined to be less than the carrying value.  If impairment is deemed to exist, the related asset is written down to fair value.  Management also evaluates events and circumstances to determine whether revised estimates of useful lives are warranted.  As of December 31, 2007, management expects the carrying value of its remaining long-lived assets to be fully recoverable.

Reinsurance—Reinsurance premiums, losses, and loss adjustment expenses (“LAE”) are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.  Reinsurance ceding commissions, if any, received are deferred and amortized over the effective period of the related insurance policies.

Federal and State Income Taxes—The Company provides deferred federal and state income taxes for certain differences between the financial statement amounts and tax basis of assets and liabilities.

79

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Comprehensive Income—Comprehensive income encompasses all changes in stockholders’ equity (except those arising from transactions with stockholders) and includes net income and changes in net unrealized investment gains and losses on fixed maturities investments classified as available-for-sale securities net of the related tax effect.  During the years ended December 31, 2007, 2006 and 2005, realized losses, net of tax, of $0.3 million, $0.2 million and $0.2 million, respectively, were reclassified out of accumulated comprehensive income into earnings.

Policyholder Dividends—Policyholder dividends are recognized over the effective period of the related policies and are restricted in certain instances to limitations imposed by the Board of Directors (see Note 9).

Unpaid Losses and LAE—Unpaid losses and LAE represent the estimated ultimate net cost of all reported and unreported losses incurred through December 31, 2007 and 2006.  The reserves for unpaid losses and LAE are estimated using individual case basis valuations and statistical analyses.  Those estimates are subject to the effects of trends in loss severity and frequency.  Although considerable variability is inherent in such estimates, management believes that the reserves for losses and LAE are adequate.  The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.

Recognition of Premium Revenue—The Company’s insurance premiums are billed annually or under various installment plans based on the estimated annual premium under the policy terms.  At the end of the policy term, payroll-based premium audits are performed on substantially all policyholder accounts to determine earned premiums for the policy year.  Earned but unbilled premiums included in premiums receivable include estimated future audit premiums.  Estimated future audit premiums are based on the Company’s historical earned premium development experience.  All premium revenue is recognized over the period of the contract in proportion to the amount of insurance protection provided.

These estimates are subject to the effects of trends in payroll audit adjustments.  Although considerable variability is inherent in such estimates, management believes that the accrual for earned but unbilled premiums is reasonable.  The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.  The reserve for unearned premiums is determined on a daily pro rata basis.

Second Injury Fund Assessments and Recoveries— Many states have laws that established second injury funds to reimburse employers and insurance carriers for workers’ compensation benefits paid to employees who are injured and whose disability is increased by a prior work-related injury.  The Company accrues a liability for second injury fund assessments as net premiums are written or as losses are incurred based on individual state guidelines, and for premium based assessments, we defer these costs and recognize them as an expense as the related premiums are earned.  The Company recognizes recoveries from the second injury funds when they are received (see Note 3).

Guaranty Fund Assessments— Most states have guaranty fund laws under which insurers doing business in the state are required to fund policyholder liabilities of insolvent insurance companies.  The Company accrues a liability for estimated assessments as net premiums are written and defers these costs and recognizes them as an expense as the related premiums are earned.  The Company is continually notified of assessments from various states relating to insolvencies in that particular state; however, there are no expense accruals recorded when the Company is unable to estimate the potential future assessment.

Policyholder Deposits—Policyholders are required to maintain deposits with the Company for certain installment pay plans.  Based on the selected pay plan, management determines the deposit amount, which is based on a percentage of the policyholders’ estimated annual premium.  Deposits are analyzed annually and adjusted as considered necessary.

Earnings Per Share—The Company computes earnings per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128.  In the calculation of basic earnings per share, the dilutive effects of options, warrants, and convertible securities are excluded from the calculation.  Diluted earnings per share consider the effects of dilutive convertible securities and stock options.

80

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Concentrations of Credit Risk—Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, investments, premiums receivable, and reinsurance recoverables (see Notes 4, 5, and 6).  Concentrations of credit risk with respect to premiums receivable are limited due to the large number of entities comprising the Company’s customer base.

Stock-Based Compensation— The Company grants stock options to its employees, officers and directors.  Effective January 1, 2006, the Company adopted the provisions of SFAS 123R, for its stock based compensation plans.  Among other things, SFAS 123R requires that compensation expense for all share-based awards be recognized in the financial statements over the requisite service period based upon the grant-date fair value of those awards.

Prior to January 1, 2006, the Company accounted for stock-based compensation to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and related interpretations and disclosure requirements established by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation – Transitions and Disclosures (“SFAS 148”). Accordingly, compensation cost for stock options issued to employees was measured as the excess, if any, of the estimated market price of the Company’s stock at the date of grant over the amount an employee must pay for the stock.

The following table illustrates the pro forma effect on net earnings and earnings per share for the year ended December 31, 2005 (as reported) if the Company had applied the fair value recognition provisions of SFAS 123(R) to stock-based employee compensation (in thousands, except per share data):

	2005
Net income	$	16,785
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards—net of related tax effects		(35	)
Pro forma net income	$	16,750
Basic earnings per share—as reported	$	3.13
Basic earnings per share—pro forma		3.12
Diluted earnings per share—as reported		1.76
Diluted earnings per share—pro forma		1.75

The fair value for those options was estimated at the date of grant using the minimum value option pricing model with the following assumptions: risk-free interest rates equal to the five-year U.S. Treasury Bill rate on the grant date; expected dividend yield of 0%; expected life equal to the life of the options between four and five years; and stock price on the date of grant.

The Company has adopted SFAS 123R using the modified prospective transition method. Under this transition method, compensation cost recognized in 2007 and 2006 includes:

· Compensation cost for all share based awards (expected to vest) granted prior to, but not yet vested as of January 1, 2006, based upon grant-date fair value estimated in accordance with the original provisions of SFAS 123; and

· Compensation cost for all share-based awards (expected to vest) granted during the years ended December 31, 2007 and 2006 based upon the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

Results for prior periods have not been restated.

81

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Upon adoption of SFAS 123R, the Company continued to use the Black-Scholes option pricing model for valuing all stock options.  Compensation for non-vested stock awards is measured at fair value on the grant-date based upon the number of shares expected to vest and the quoted market price of the underlying common stock. Compensation cost for all awards is recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.   As a result of the adoption of SFAS 123R, the Company recognized approximately $0.7 million and $0.6 million of stock option compensation expense in the years ended December 31, 2007 and 2006, respectively.  Basic and diluted earnings per share for the years ended December 31, 2007 and 2006 were reduced by $0.05 and $0.04, respectively.  Additionally, as a result of adoption, cash flows from financing increased less than $0.1 million and $0.2 million for the years ended December 31, 2007 and 2006, respectively.  Cash flows from operations decreased by the same amount.

See Note 15 for additional information regarding the Company’s stock-based compensation plans and the assumptions used to calculate the fair value of stock-based awards.

Segment Reporting—The Company operates in a single industry segment, property and casualty insurance specializing in workers’ compensation insurance.

New Accounting Pronouncements— In July 2006, the Financial Accounting Standards Board (“FASB”) issued an interpretation of FASB Statement No. 109, Accounting for Uncertainty in Income Taxes (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  The Interpretation establishes a “more likely than not” recognition threshold for tax benefits to be recognized in the financial statements.  The “more likely than not” determination is to be based solely on the technical merits of the position.  This interpretation was adopted by the Company on January 1, 2007.  As of the adoption date and as of December 31, 2007, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. SFAS No. 157 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the impact of this standard.

Statement of Position (“SOP”) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts, issued September 2005, became effective January 1, 2007. SOP 05-1 provides guidance on accounting for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The adoption of SOP 05-01 did not have a material impact upon adoption.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”), which permits entities to elect to measure many financial instruments and certain other items at fair value.  Upon adoption of SFAS No. 159, an entity may elect the fair value option for eligible items that exist at the adoption date. Subsequent to the initial adoption, the election of the fair value option should only be made at the initial recognition of the asset or liability or upon a re-measurement event that gives rise to the new-basis of accounting. All subsequent changes in fair value for that instrument are reported in earnings.  SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be recorded at fair value nor does it eliminate disclosure requirements included in other accounting standards.  SFAS No. 159 is effective as of January 1, 2008.  The Company is currently evaluating the impact of this standard.

82

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.   SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, SFAS No. 141(R) will be applied by the Company to business combinations occurring on or after January 1, 2009.

2.    REGULATORY REQUIREMENTS AND RESTRICTIONS (UNAUDITED)

AmCOMP Preferred and AmCOMP Assurance are required to periodically submit financial statements prepared in accordance with prescribed or permitted statutory accounting practices (“SAP”) to the Florida Department of Financial Services (“FDFS”).  Such practices vary from GAAP.  Prescribed SAP includes state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (“NAIC”).  Permitted SAP encompasses all accounting practices that are not specifically prescribed, but have been permitted by the regulatory authority; such practices may differ from company to company and may not necessarily be permitted in subsequent reporting periods.

AmCOMP Preferred and AmCOMP Assurance are subject to comprehensive supervision and regulation by the FDFS.  Florida statute Section 624.408 requires AmCOMP Preferred and AmCOMP Assurance to maintain minimum capital and surplus of the greater of $4.0 million or 10% of total liabilities.  Florida statute Section 624.4095 requires AmCOMP Preferred and AmCOMP Assurance to maintain a ratio of written premiums times 1.25 to surplus of no greater than 10-to-1 for gross written premiums and 4-to-1 for net written premiums.  During the years ended December 31, 2007 and 2006, AmCOMP Preferred and AmCOMP Assurance were in compliance with these statutes.

Additionally, AmCOMP Preferred and AmCOMP Assurance are required to comply with NAIC risk-based capital (“RBC”) requirements.  RBC is a method of measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile.  NAIC RBC standards are used by regulators to determine appropriate regulatory actions relating to insurers that show signs of weak or deteriorating conditions.

As of December 31, 2007 and 2006, AmCOMP Preferred’s and AmCOMP Assurance’s total adjusted capital is above all regulatory action levels.

Statutory-basis net income (loss) for AmCOMP Preferred and AmCOMP Assurance for the years ended December 31, 2007, 2006 and 2005 is as follows (in thousands):

	2007		2006		2005
AmComp Preferred	$	12,712	$	8,596	$	5,922
AmComp Assurance		8,095		5,317		6,078

Statutory-basis capital and surplus for AmCOMP Preferred and AmCOMP Assurance as of December 31, 2007 and 2006 is as follows (in thousands):

	2007		2006
AmComp Preferred(a)	$	176,463	$	155,509
AmComp Assurance		102,068		84,817
(a) includes AmCOMP Preferred’s equity ownership in AmCOMP Assurance’s capital and surplus

83

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Under Florida insurance regulations, the maximum dividend to stockholders that may be paid without prior approval by the FDFS is specifically defined by the Florida insurance laws and regulations and is generally based on operating results and capital and surplus.  For AmCOMP Preferred and AmCOMP Assurance, no dividends were paid during 2007 and 2006.  As of December 31, 2007 and 2006, AmCOMP Preferred had $17.6 million and $15.6 million, respectively, available to pay dividends without prior approval.  As of December 31, 2007 and 2006, AmCOMP Assurance had $10.2 million and $7.4 million, respectively, available to pay dividends without prior approval.  These amounts represent 10% of statutory surplus, not to exceed unassigned funds.

Stock insurance companies are subject to Florida statute 627.215 and applicable regulations related to Florida excess profits for workers’ compensation insurance companies.  Florida excessive profits are calculated based upon a complex statutory formula which is applied over rolling three year periods.  Companies are required to file annual excess profits forms, and they are required to return so-called “Florida excessive profits” to policyholders in the form of a cash refund or credit toward the future purchase of insurance.  To date, we have not been required to return excess profits.  See note 17.  As of December 31, 2007, the Company had accrued $0.5 million for estimated additional Florida excessive profits based on its statutory underwriting results for the 2004, 2005 and 2006 years.

3.   Assessments

Guaranty Fund Assessments— Most states have guaranty fund laws under which insurers doing business in the state are required to fund policyholder liabilities of insolvent insurance companies.  Generally, assessments are levied by guaranty associations within the state, up to prescribed limits, on all insurers doing business in that state on the basis of the proportionate share of the premiums written by insurers doing business in that state in the lines of business in which the impaired, insolvent or failed insurer is engaged.  The Company accrues a liability for estimated assessments as direct premiums are written and defers these costs and recognizes them as an expense as the related premiums are earned.  The Company is continually notified of assessments from various states relating to insolvencies in that particular state; however, the Company estimates the potential future assessment in the absence of an actual assessment.  Guaranty fund assessment expenses were ($1.6) million, $1.5 million and $4.0 million for the years ended December 31, 2007, 2006 and 2005, respectively.  The Company has deferred approximately $1.0 million and $1.2 million as of December 31, 2007 and 2006, respectively, related to guaranty fund assessments, which is included in deferred policy acquisition costs.  Additionally, guarantee fund receivable assets of $1.5 million and $2.4 million as of December 31, 2007 and 2006, respectively, are included in other assets, as they can be used as a credit against future premium taxes owed.  Maximum contributions required by law in any one state in which we offer insurance vary between 0.2% and 2.0% of direct premiums written.

Second Injury Fund Assessments and Recoveries — Many states have laws that established second injury funds to reimburse employers and insurance carriers for workers’ compensation benefits paid to employees who are injured and whose disability is increased by a prior work-related injury.  The source of these funds is an assessment charged to workers’ compensation insurance carriers doing business in such states.  Assessments are based on paid losses or premium surcharge mechanisms.  Several of the states in which we operate maintain second injury funds with material assessments.  The Company accrues a liability for second injury fund assessments as net premiums are written or as losses are incurred based on individual state guidelines, and for premium based assessments, we defer these costs and recognize them as an expense as the related premiums are earned.  Second Injury Fund assessment expense was $3.0 million, $4.6 million, $11.9 million for the years ended December 31, 2007, 2006 and 2005, respectively.  The Company has deferred approximately $1.5 million and $1.8 million as of December 31, 2007 and 2006, respectively, related to second injury fund assessments, which is included in deferred policy acquisition costs.

The Company submits claims to the appropriate state’s second injury fund for recovery of applicable claims paid on behalf of the Company’s insureds.  Because of the uncertainty of the collectability of such amounts, second injury fund recoverables are reported in the accompanying consolidated financial statements when received.  Cash collections from the second injury funds were approximately $2.3 million, $1.4 million, $2.2 million in the years ended December 31, 2007, 2006 and 2005, respectively.

84

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

The Florida SDTF currently has significant unfunded liabilities.  It is not possible to predict how the Florida SDTF will operate, if at all, in the future after further legislative review.  Changes in the Florida SDTF’s operations could decrease the availability of recoveries from the Florida SDTF, increase Florida SDTF assessments payable by AmCOMP and/or result in the discontinuation of the Florida SDTF and thus could have an adverse effect on AmCOMP’s business, financial condition, and its operations.  Under current law, future assessments are capped at 4.52% of net written premiums, and no recoveries can be made for losses or submitted on claims occurring after January 1, 1998.

Other Assessments— Various other assessments are levied by states in which the Company transacts business, and are primarily based on premiums written or collected in the applicable state.  The total expense related to these assessments was $0.9 million, $1.2 million and $1.3 million for the years ended December 31, 2007, 2006 and 2005, respectively.  The Company has deferred approximately $0.2 million and $0.3 million as of December 31, 2007 and 2006, respectively, related to these assessments, which are included in deferred policy acquisition costs.

Liabilities for assessments are expected to be paid over the next five years.  Guarantee fund receivable assets are expected to be realized over the next five to ten years.

4.   INVESTMENTS

The Company’s investments in available-for-sale securities and held-to-maturity securities are summarized as follows at December 31, 2007 and 2006 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available-for-sale securities at December 31, 2007:
U.S. Treasury securities	$	22,850	$	1,367	$	17	$	24,200
Agency		37,279		345		35		37,589
Municipalities		80,959		406		101		81,264
Corporate debt securities		160,457		825		1,101		160,181
Mortgage-backed securities		26,111		587		85		26,613
Total fixed maturity securities	$	327,656	$	3,530	$	1,339	$	329,847
Held-to-maturity securities at December 31, 2007:
Mortgage-backed securities	$	93,661	$	990	$	237	$	94,414
Available-for-sale securities at December 31, 2006:
U.S. Treasury securities	$	34,020	$	848	$	706	$	34,162
Agency		42,276		17		447		41,846
Municipalities		74,737		137		819		74,055
Corporate debt securities		190,638		196		3,196		187,638
Mortgage-backed securities		7,816		3		202		7,617
Total fixed maturity securities	$	349,487	$	1,201	$	5,370	$	345,318
Held-to-maturity securities at December 31, 2006:
Mortgage-backed securities	$	76,198	$	255	$	520	$	75,933

85

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

The amortized cost and estimated fair values of investments in fixed maturity securities, segregated by available-for-sale and held-to-maturity, at December 31, 2007 are summarized by maturity as follows (in thousands):

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Years to maturity:
One or less	$	49,111	$	48,917		—		—
After one through five		127,712		127,828		—		—
After five through ten		107,762		108,420		—		—
After ten		16,960		18,069		—		—
Mortgage-backed securities		26,111		26,613		93,661		94,414
Total	$	327,656	$	329,847	$	93,661	$	94,414

The foregoing data is based on the stated maturities of the securities.  Actual maturities may differ as borrowers may have the right to call or prepay obligations.

At December 31, 2007 and 2006, bonds with an amortized cost of $7.9 million and $13.2 million and a fair value of $9.0 million and $14.0 million, respectively, were on deposit with various states’ departments of insurance in accordance with regulatory requirements.  Additionally, as of December 31, 2007, $6.0 million of cash, representing a matured security not yet reinvested, was on deposit with a department of insurance.  At December 31, 2007 and 2006, bonds with an amortized cost of $6.5 million and $6.0 million and a fair value of $6.6 million and $5.9 million, respectively, were held in a reinsurance trust to the benefit of members of the Orion Insurance Group in accordance with the terms of a reinsurance agreement between the Company and the Orion Companies.

Major categories of the Company’s net investment income for the years ended December 31, 2007, 2006 and 2005 are summarized as follows (in thousands):

	2007		2006		2005
Income:
Fixed maturity securities	$	20,167	$	17,031	$	11,038
Cash and cash equivalents		796		1,265		674
Investment income		20,963		18,296		11,712
Investment expenses		861		835		914
Net investment income	$	20,102	$	17,461	$	10,798

Proceeds from the sale of available-for-sale fixed maturity securities during the years ended December 31, 2007, 2006 and 2005 were $23.1 million, $5.3 million and $33.4 million, respectively.  Gross gains of less than $0.1 million, less than $0.1 million, and $0.2 million were realized in the years ended December 31, 2007, 2006 and 2005 respectively.  Gross losses of $0.4 million, $0.2 million and $0.6 million were realized in the years ended December 31, 2007, 2006 and 2005, respectively, on those sales.

The Company continuously monitors its portfolio to preserve principal values whenever possible.  An investment in a fixed maturity security is impaired if its fair value falls below its book value.  All securities in an unrealized loss position are reviewed to determine whether the impairment is other-than-temporary.  Factors considered in determining whether an impairment is considered to be other-than-temporary include length of time and the extent to which fair value has been below cost, the financial condition and near-term prospects of the issuer, and the Company’s ability and intent to hold the security until its expected recovery.

86

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

The following table summarizes, for all fixed maturity securities in an unrealized loss position at December 31, 2007, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

	Fair Value		Unrealized Losses			Number of Issues
	(In thousands)
Less than 12 months:
U.S. Treasury securities	$	-	$	-		­-
Agency		-		-			-
Municipalities		-		-			-
Corporate debt securities		13,348		(75	)		6
Mortgage-backed securities		10,814		(49	)		2
Total	$	24,162	$	(124	)		8
Greater than 12 months:
U.S. Treasury securities	$	4,887	$	(17	)		6
Agency		9,001		(35	)		6
Municipalities		33,555		(101	)		24
Corporate debt securities		88,476		(1,026	)		60
Mortgage-backed securities		17,320		(273	)		13
Total	$	153,239	$	(1,452	)		109
Total fixed maturity securities:
U.S. Treasury securities	$	4,887	$	(17	)		6
Agency		9,001		(35	)		6
Municipalities		33,555		(101	)		24
Corporate debt securities		101,824		(1,101	)		66
Mortgage-backed securities		28,134		(322	)		15
Total fixed maturity securities	$	177,401	$	(1,576	)		117

At December 31, 2007, there were no investments in fixed maturity securities with individual material unrealized losses.  One other-than-temporary impairment totaling $0.1 million and three other-than-temporary impairments totaling approximately $0.2 million were recorded on our investments during the years ended December 31, 2007 and 2006, respectively.  Substantially, all the unrealized losses on the fixed maturity securities are interest rate related.

5. PREMIUMS RECEIVABLE

Major categories of the Company’s premiums receivable at December 31, 2007 and 2006 are summarized as follows (in thousands):

	2007			2006
Direct billed premiums receivable	$	14,984		$	20,722
Estimated future audit premiums		6,010			11,318
Collateralized premiums receivable		6			31
Premiums receivable deferred installments		70,224			78,305
		91,224			110,376
Less allowance for doubtful accounts		(2,738	)		(4,106	)
Net premiums receivable	$	88,486		$	106,270

87

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

6. REINSURANCE

 

Certain premiums and losses are ceded to other insurance companies under quota share reinsurance arrangements and various aggregate and specific excess of loss reinsurance agreements.  The ceded reinsurance agreements are intended to provide the Company with the ability to maintain its exposure to loss within its capital resources.  Losses ceded under these treaties are estimated based on ultimate losses.  These estimates are subject to the effects of trends in loss severity.  Although considerable variability is inherent in such estimates, management believes that their estimates of losses ceded under these treaties are reasonable.  These estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations. Effective July 2004, the Company discontinued the use of quota share reinsurance on new and renewal business.

AmCOMP Preferred and AmCOMP Assurance offer workers’ compensation policies at statutory limits. A summary of specific and aggregate reinsurance retention limits, as well as limits above which retention reverts to the Company are as follows (in thousands):

	Specific		Aggregate		Occurrence
Accident Year	Retention		Retention		Limit
1989 and 1990	$	500	Unlimited		Unlimited
1991 through 1993		500	Unlimited		Unlimited
1994		400	Unlimited		Unlimited
1995		400	$	28,000	Unlimited
1996 through 1998		500	Unlimited		Unlimited
1999 through 2001		250	Unlimited		Unlimited
2002 (a)		500	Unlimited		$	50,000
2003		1,000	Unlimited			20,000
2004 (b)		1,000	Unlimited			20,000
2005		2,000	Unlimited			20,000
2006 and 2007		2,000	Unlimited			30,000

__________________

(a) For policies effective in 2002, the specific retention is $500,000.  The reinsurer’s limit on policies effective in 2002 was $50 million.  The Company also retained 10% of the layer from $1 million to $10 million for the first half of 2002 on policies effective in 2002 and 10% of the layer from $5 million to $10 million for the second half of 2002 for policies effective in 2002.

(b) For in-force, new and renewal policies effective in 2004, the specific retention is $1 million.  The Company also retained 10% of the layer from $5 million to $10 million.

In addition to the stated specific retentions and limits shown and consistent with common industry practice, our excess reinsurance contracts contain several other limitations to claim payouts. Some of the more significant limitations include limitations to the payout for any one claimant, limitations to the number of reinsurance claims allowed in any one year, and exclusions for payments related to terrorism and other similarly catastrophic events.

88

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Insurance premiums for the years ended December 31, 2007, 2006 and 2005 are summarized as follows (in thousands):

	2007						2006						2005
	Written			Earned			Written			Earned			Written			Earned
Direct	$	220,565		$	231,667		$	266,827		$	269,752		$	270,331		$	267,809
Assumed		4,979			5,330			6,886			7,266			6,764			8,308
Ceded		(4,460	)		(7,648	)		(8,925	)		(10,562	)		(9,443	)		(19,514	)
Net	$	221,084		$	229,349		$	264,788		$	266,456		$	267,652		$	256,603

Incurred losses and loss adjustment expenses for the years ended December 31, 2007, 2006 and 2005 are summarized as follows (in thousands):

	2007		2006		2005
Direct losses and loss adjustment expenses incurred	$	121,709	$	157,005	$	144,832
Assumed losses and loss adjustment expenses incurred		2,708		6,376		8,164
Ceded losses and loss adjustment expenses incurred		2,145		289		(9,333	)
Net losses and loss adjustment expenses incurred	$	126,562	$	163,670	$	143,663

Reinsurance recoverables on paid and unpaid losses and loss adjustment expenses were $67.8 million and $75.4 million at December 31, 2007 and 2006, respectively, of which $32.2 million and $39.1 million, respectively, was recoverable from a single reinsurer, Continental Casualty Company, a subsidiary of CNA Financial Corporation.  Management evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies.  Reinsurance contracts do not relieve the Company from its obligations to policyholders.  Failure of reinsurers to honor their obligations could result in losses to the Company.

7. FEDERAL AND STATE INCOME TAXES

Effective January 1, 2007, the Company adopted FIN 48. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, and accounting in interim periods.  The Interpretation establishes a “more likely than not” recognition threshold for tax benefits to be recognized in the financial statements.  The “more likely than not” determination is to be based solely on the technical merits of the position.  As of the adoption date and as of December 31, 2007, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required. We recognize income tax related interest in interest expense and penalties in income tax expense. Income tax related interest recognized in the years ended December 31, 2007 and 2006 was $0.2 million and $0.3 million, respectively.  Tax related interest accrued as of December 31, 2007, and December 31, 2006 was $0.6 million and $0.4 million, respectively.  Tax years 2004 through 2006 and 2003 through 2006 are subject to examination by the federal and state taxing authorities, respectively.  There are no income tax examinations currently in process.

89

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Significant components of income tax expense for the years ended December 31, 2007, 2006 and 2005 are as follows (in thousands):

	2007			2006			2005
Current tax expense
Federal	$	11,579		$	8,690		$	9,555
State		515			425			1,205
Total current tax expense		12,094			9,115			10,760
Deferred tax benefit
Federal		(505	)		(827	)		(1,123	)
State		(127	)		(32	)		(311	)
Total deferred tax benefit		(632	)		(859	)		(1,434	)
Income tax expense	$	11,462		$	8,256		$	9,326

The effective federal income tax rates on income before income taxes differ from the maximum statutory rates as follows for the years ended December 31, 2007, 2006 and 2005 (in thousands):

	2007			%			2006			%			2005			%
Income tax at statutory rate	$	10,604			35.0	%	$	8,687			35.0	%	$	9,139			35.0	%
Permanent differences:
State income taxes		594			2.0			255			1.1			844			3.2
Tax-exempt interest		(1,112	)		(3.7	)		(942	)		(3.8	)		(584	)		(2.2	)
Non-deductible meals and entertainment		461			1.5			197			0.8			350			1.3
Change in deferred tax rate		—			—			(513	)		(2.0	)		—			—
Provision to return adjustment		748			2.4			278			1.1			(4	)		—
Non-deductible option expense		138			0.5			133			0.5			—			—
Other expense—net		29			0.1			161			0.6			(419	)		(1.6	)
Effective income tax expense	$	11,462			37.8	%	$	8,256			33.3	%	$	9,326			35.7	%

The Company records deferred federal income taxes on certain temporary differences between the amounts reported in the accompanying consolidated financial statements and the amounts reported for federal and state income tax reporting purposes.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and tax liabilities as of December 31, 2007 and 2006 are presented below (in thousands):

	2007			2006
Deferred tax assets:
Loss and LAE reserve adjustments	$	13,094		$	13,551
Unearned and advance premiums		7,325			8,112
Allowance for bad debt		998			1,531
Policyholder dividends		3,746			3,170
FAS 115 unrealized losses		—			1,553
Deferred compensation		974			650
Disallowed capital losses		491			326
Other		1,335			689
Total deferred tax assets		27,963			29,582
Deferred tax liabilities:
Deferred policy acquisition expenses		(6,968	)		(7,734	)
FAS 115 unrealized gains		(799	)		—
Other		(307	)		(235	)
Total deferred tax liabilities		(8,074	)		(7,969	)
Total net deferred tax assets	$	19,889		$	21,613

90

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

8. UNPAID LOSSES AND LAE

The following table provides a reconciliation of the beginning and ending balances for unpaid losses and LAE, reported in the accompanying consolidated balance sheets as of December 31, 2007 and 2006 (in thousands):

	2007			2006			2005
Unpaid losses and LAE, gross of related reinsurance recoverables, at beginning of period	$	334,363		$	309,857		$	297,698
Less reinsurance recoverables on unpaid losses and LAE at beginning of period		72,296			78,659			107,155
Unpaid losses and LAE, net of related reinsurance recoverables, at beginning of period		262,067			231,198			190,543
Add provision for losses and LAE, net of reinsurance, occurring in:
Current period		163,070			177,841			168,355
Prior periods		(36,508	)		(14,171	)		(24,692	)
Incurred losses during the current period, net of reinsurance		126,562			163,670			143,663
Deduct payments for losses and LAE, net of reinsurance, occurring in:
Current period		52,974			56,448			48,299
Prior periods		77,784			76,353			54,709
Payments for losses and LAE during the current period, net of reinsurance		130,758			132,801			103,008
Unpaid losses and LAE, net of related reinsurance recoverables, at end of period		257,871			262,067			231,198
Reinsurance recoverables on unpaid losses and LAE at end of period		66,353			72,296			78,659
Unpaid losses and LAE, gross of reinsurance recoverables, at end of period	$	324,224		$	334,363		$	309,857

The Company’s estimate for losses and LAE related to prior years, net of related reinsurance recoverables, decreased during the years December 31, 2007 and 2006 by $36.5 million and $14.2 million, respectively, as a result of actual loss development emerging more favorably than expected.  Excluding business assumed from state mandated pools, the redundancy in the year ended December 31, 2007 was attributable to prior year reserve decreases in Florida ($17.6 million), Tennessee ($4.9 million), Wisconsin ($2.8 million), Indiana ($2.8 million), South Carolina ($2.2 million), Texas ($2.2 million), North Carolina ($1.7 million), Georgia ($1.2 million) and less significant decreases in several other states.  The accident years with the largest redundancies were 2006 ($13.4 million), 2005 ($11.1 million) and 2004 ($6.4 million).  Excluding assumed business, the redundancy in the year ended December 31, 2006 was attributable to prior year reserve decreases in Florida ($10.9 million), Tennessee ($7.2 million), Indiana ($4.3 million), and Texas ($3.7 million), offset by increases in North Carolina ($4.7 million), and Wisconsin ($3.8 million), with the remaining offset being attributable to other states and assumed business.  The redundancy in the year ended December 31, 2005 was attributable to loss development experience being lower than our selected development factors.  Because of the Company’s extensive history in Florida, Florida loss development factors significantly influence the results of our actuarial reserving methods.  The results of these methods, in turn, influence the IBNR estimate.  In years leading up to 2005, Florida loss development experience decreased from previous levels.

Management believes the historical experience of the Company is a reasonable basis for estimating future losses.  However, future events beyond the control of management, such as changes in law, judicial interpretations of law, and inflation may favorably or unfavorably impact the ultimate settlement of the Company’s loss and loss adjustment expenses.

The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE.  While anticipated changes in claim costs due to inflation are considered in estimating the ultimate claim costs, the increase in average severity of claims is caused by a number of factors that vary with the individual type of policy written.  Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends.  Those anticipated trends are monitored based on actual development and are modified if necessary.  Changes in the Company’s estimate of reserves for losses and loss adjustment expenses are reflected in operations in the period in which the estimates are changed.

91

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

9. POLICYHOLDER DIVIDENDS

Certain policyholders have entered into agreements that provide the opportunity for dividends.  Dividends are accrued on such policies based on specific dividend contract provisions, and the policies’ earned premiums and loss ratios.  Additionally, dividend agreements also allow management to reduce the amount to be paid at management’s discretion, based on the overall profitability of the Company.  Should management choose to reduce the ultimate dividends to be paid, once the amount of the total dividend that will be paid for a policy year is determined, the dividend accrued would be reduced down to the level determined by management.  The reduced dividend amount would be allocated ratably to the participating policies, based on the dividend amount calculated prior to the reduction.  Approximately 28%, 26% and 25% of the total business was subject to dividend participation during the years ended December 31, 2007, 2006 and 2005, respectively.  The dividends are ultimately paid at the sole discretion of the Board of Directors (the “Board”) and must be approved by the Board prior to payment.

Board-mandated dividends accrued for 2007, 2006 and 2005 policies reflect the full potential amount allowed under the respective policies.

10.  COMMITMENTS AND CONTINGENCIES

As of December 31, 2007, the Company had accrued $0.5 million for estimated additional Florida dividends based on its statutory underwriting results pursuant to Florida Statute 627.215 and applicable regulations (“Florida excessive profits”). AmCOMP’s ultimate liability will be based on its premiums earned, loss reserves and expenses compiled in accordance with the statute and regulations.

Litigation—AmCOMP along with AmCOMP Preferred and AmCOMP Assurance are collectively defendants in identical actions commenced in Pennsylvania and Florida courts by the Insurance Commissioner of Pennsylvania, acting in the capacity as liquidator of Reliance Insurance Company.  The complaints in those actions allege that preferential payments were made by Reliance Insurance Company under the formerly existing reinsurance agreement with AmCOMP Preferred and AmCOMP Assurance and seek damages in the amount of approximately $2.3 million.  AmCOMP, along with AmCOMP Preferred and AmCOMP Assurance, has made various motions addressed to these complaints.  The Company, based on the advice of counsel, believes that it has a variety of factual and legal defenses, including but not limited to a right of offset related to the statement of claim filed by the Company and Preferred in the Reliance Insurance Company liquidation proceeding for the recovery of approximately $7.8 million under the reinsurance agreement.  However, on November 14, 2007 the trial court in Florida granted the plaintiff liquidator’s motion for partial summary judgment, finding that the approximate $2.3 million in payments were “preferential” under Pennsylvania law.  This order is not yet a final, appealable order under Florida law.  There are a number of remaining issues, including AmCOMP’s affirmative defenses, which must be determined by the court before a final order or judgment could be entered.  Although the ultimate results of these legal actions and related claims (including any future appeals) are uncertain, the Company had accrued liabilities of $1.2 million, included in accounts payable and accrued expenses, as of December 31, 2007 and 2006 related to those matters.

The Company is named as a defendant in various legal actions arising principally from claims made under insurance policies and contracts.  Those actions are considered by the Company in estimating the losses and LAE reserves.

Leases—The Company leases office space, equipment and automobiles under noncancelable lease agreements, with various renewal and escalation clauses.  Rental expense was $3.2 million, $3.2 million and $2.6 million for 2007, 2006 and 2005, respectively.  Future minimum payments under noncancelable capital and operating leases with initial terms of one year or more as of December 31, 2007 are as follows (in thousands):

Year Ended December 31,	Capital Leases		Operating Leases		Total Lease Commitments
2008	$	340	$	2,563	$	2,903
2009		340		1,918		2,258
2010		116		1,296		1,412
2011		–		754		754
2012 and thereafter		–		626		626
	$	796	$	7,157	$	7,953

92

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Employment Contracts—The Company has entered into employment contracts with certain of its executives.  These contracts generally provide for continuing compensation for a period of 12 to 18 months if the executives are released without cause, except the contract of the chief executive officer provides for compensation for a period equal to the greater of 18 months or the number of months then remaining in the term of the contract.

11.   FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosure About Fair Value of Financial Instruments, requires disclosure of the estimated fair value of all financial instruments, including both assets and liabilities, unless specifically exempted.

The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:

Cash and Cash Equivalents—The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value due to the short-term nature of those items.

Investment Securities—Fair values for fixed maturity securities and other invested assets are based on quoted market prices where available.  For fixed maturity securities not actively traded, fair values are estimated using values obtained from independent pricing services (see Note 4).

Notes Payable—The Company’s note payable is a floating rate long-term debt.  Accordingly, the carrying amount is estimated to approximate the fair value.

12.   401(K) SAVINGS PLAN

The Company sponsors a 401(k) tax-deferred retirement savings plan (the “Plan”) for its employees.  The Plan is approved by the Internal Revenue Service and is administered by a national financial management service.  The Company matches the employee’s contribution at 100% for the first 2% of salary and 50% for the next 4% of salary.  Expenses relating to the Plan were $753,000, $619,000 and $570,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Effective January 1, 2007, eligibility into the plan was changed to allow entrance into the plan following the first full month of employment, which was a change from the six months previously required.

13.   NOTES PAYABLE

On October 12, 2000, the Company entered into a credit facility (the “Loan”) with a financial institution under which the Company borrowed $11.3 million.  The Loan calls for monthly interest payments at the 30-day LIBOR rate plus a margin.  The expiration date on the loan is April 10, 2010.  The Loan is collateralized by $25.5 million of surplus notes issued by AmCOMP Preferred and AmCOMP Assurance and the stock of AmCOMP Preferred.  During 2003, the remaining balance of the Loan was refinanced and the Company borrowed an additional $5.5 million.  At December 31, 2007 and 2006, the principal balance was $4.5 million and $6.3 million respectively.  The interest rate was 6.83% and 7.85% at December 31, 2007 and 2006, respectively.  Interest paid during 2007, 2006 and 2005 totaled $0.4 million, $0.5 million and $0.5 million, respectively.

The Loan contains various restrictive covenants and certain financial covenants.  At December 31, 2007, the Company was in compliance with all restrictive and financial covenants.

On April 30, 2004, AmCOMP Preferred issued a $10.0 million surplus note in return for $10.0 million in cash to Dekania CDO II, Ltd., as part of a pooled transaction.  The note matures in 30 years and is callable by the Company after five years.  The terms of the note provide for quarterly interest payments at a rate 425 basis points in excess of the 90-day LIBOR.  Both the payment of interest and repayment of the principal under this note and the surplus notes described in the succeeding two paragraphs are subject to the prior approval of the Florida Department of Financial Services. Interest paid during the years ended December 31, 2007, 2006 and 2005 totaled $1.0 million and $0.9 million, and $0.7 million, respectively.  Interest accrued as of December 31, 2007 and 2006 was $0.1 million.

93

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

On May 26, 2004, AmCOMP Preferred issued a $12.0 million surplus note, in return for $12.0 million in cash, to ICONS, Inc., as part of a pooled transaction.  The note matures in 30 years and is callable by the Company after five years.  The terms of the note provide for quarterly interest payments at a rate 425 basis points in excess of the 90-day LIBOR. Interest paid during the years ended December 31, 2007, 2006 and 2005 totaled $1.2 million, $1.1 million and $0.9 million, respectively. Interest accrued as of December 31, 2007 and 2006 was $0.1 million.

On September 14, 2004, AmCOMP Preferred issued a $10.0 million surplus note, in return for $10.0 million in cash, to Alesco Preferred Funding V, LTD, as part of a pooled transaction.  The note matures in approximately 30 years and is callable by the Company after approximately five years.  The terms of the note provide for quarterly interest payments at a rate 405 basis points in excess of the 90-day LIBOR. Interest paid during the years ended December 31, 2007, 2006 and 2005 totaled $1.0 million, $0.9 million and $0.7 million, respectively. Interest accrued as of December 31, 2007 and 2006 was less than $0.1 million.

Payments of principal due on the notes payable at December 31, 2007 are as follows (in thousands):

2008	$	1,786
2009		1,786
2010		892
2011		–
2012 and thereafter		32,000
Total	$	36,464

14.   CAPITAL STOCK

Convertible Preferred Stock Series A—At December 31, 2005, 2.4 million shares of $1.00 par value, voting, participating, convertible preferred stock (“CPS”) was authorized, issued, and outstanding.  If the Company declared and paid a dividend on the common stock, the CPS stockholders were entitled to a dividend equal to the dividend that would have been payable to such holder if the shares had been converted.  The CPS had a liquidation preference of $10 per share and was convertible, at the holder’s option, into 1.7464 shares of the Company’s common stock for each share of CPS held.  The CPS automatically converted into 4,191,399 shares of common stock upon consummation of the qualified public offering.

Undesignated Preferred Stock—At December 31, 2007, the board or directors had the authority to issue up to 5,000,000 shares of undesignated preferred stock and to determine the rights, preferences and privileges of the shares, without stockholder approval.

Common Stock—There were 45 million authorized shares of $.01 par value common stock as of December 31, 2007 and 2006, respectively.  At December 31, 2007 and 2006, 15,921,540 and 15,893,162 shares, respectively, were issued and 15,290,181 and 15,758,252, respectively, were outstanding.  Dividends are payable as declared by the Board.

As of December 31, 2007, 1,081,314 shares of common stock were issuable and reserved for future issuance under employee stock option plans and to executives granted options outside of option plans.

During 2005, the Company repurchased 873 shares at a purchase price of $4.24.  The repurchased shares are recorded as treasury stock on the consolidated balance sheets.  In August 2007, the Company’s Board of Directors authorized a share repurchase program to acquire up to 1.5 million shares of the Company’s common stock. The program was intended to be implemented through purchases made from time to time in either the open market or through private transactions, in accordance with the Securities and Exchange Commission’s requirements.  Repurchases under this authorization commenced in August 2007, and were suspended in December 2007, in connection with the potential acquisition of the Company by Employers Holdings, Inc.  As of December 31, 2007, 559,954 shares have been repurchased pursuant to this authorization at an average cost of $9.76 per share.  Additional shares may be repurchased as conditions warrant.

94

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

15.   STOCK OPTIONS

During 1997, the Board of Directors approved a director stock option plan (the “Directors Plan”) and reserved 87,320 shares of common stock for issuance under this plan.  Under the Directors Plan, options vest over a period determined at the time of grant and are exercisable over a five-year period after the date of grant for an exercise price equal to fair value of the common stock (prior to the initial public offering management’s estimate of the fair market value) on the date of grant .  In January 2006, the Directors’ Plan was amended.  The amended plan states that all directors who are not employees of AmCOMP are eligible to receive grants of options under the Directors Plan. Each eligible director receives an automatic, nondiscretionary grant of (1) an option to purchase shares of common stock with an aggregate fair market value at the time of grant equal to $66,000 upon election to the Board and (2) options to purchase shares of common stock with an aggregate fair market value at the time of grant equal to $13,200 annually on each January 1 thereafter so long as he remains an eligible director. In addition, the Board has the authority to make discretionary grants of options under the Plan.  In April 2007, the Directors plan expired, which had no effect on options outstanding thereunder.

During 1996, the Board approved an employee stock option plan (the “1996 Plan”) and reserved 272,878 shares of the Company’s common stock, subsequently increased to 960,531 shares, for future issuance thereunder.  The employee options vest over a period determined at the time of grant and are exercisable over a period of not more than 10 years at an exercise price equal to management’s estimate of the fair market value of the common stock at the date of grant in the case of incentive options and not less than 80% of such fair market value in the case of nonqualified options.   In September 2005, the Board terminated the 1996 Plan, which had no effect on options outstanding thereunder.

Prior to 1999, the Company granted two executives options to purchase shares under nonqualified stock option agreements. Of the options granted, options to purchase 54,575 and 272,877 common shares are still outstanding as of December 31, 2007 and 2006, respectively. These options vested over a three to five-year period and are exercisable over a 10 year period after the date of grant at an exercise price of $13.74 per share.

In September 2005, the Board adopted an employee stock option plan (the "2005 Plan"), and reserved 567,586 shares with a limit of 218,302 shares per optionee per calendar year. Unless sooner terminated by the Board, the 2005 Plan terminates on September 6, 2015. The employee options vest over a period determined at the time of grant, generally 4 years, and are exercisable over a period of not more than 10 years at an exercise price at least equal to fair market value of the common stock at the date of grant.

In February 2006, the Company granted three executives options to purchase 384,217 shares of common stock outside of existing plans.  These options vest over a three-to-four year period and are exercisable over a five-year period after the date of grant for an exercise price of $9 per share.

Effective January 1, 2006, the Company adopted SFAS No. 123R, using the modified prospective application transition method.  Under this method, all outstanding employee stock options are being expensed over the remaining vesting period based on the fair value of the options at the date they were granted.  Additionally, SFAS No. 123R requires the estimation of forfeitures in calculating the expense related to stock-based compensation.  As a result of the adoption of SFAS No. 123R, the Company recognized approximately $0.7 million and $0.6 million of stock option compensation expense and less than $0.1million of related tax benefit in the years ended December 31, 2007 and 2006, respectively.  As of December 31, 2007, total unrecognized compensation expense related to non-vested stock options was approximately $1.3 million.  This cost is expected to be recognized over the weighted average period of 1.9 years.

For the years ended December 31, 2005 and prior, the Company has elected to follow APB No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock options granted to employees and directors.  Under APB No. 25, because the exercise price of the Company’s employee stock options equals or is greater than the estimated fair value of the underlying stock on the date of grant, no compensation expense is recognized.

95

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

A summary of the Company’s stock option activity through December 31, 2007 is as follows:

	Employees, Directors, and Executives
	Average Exercise Price		Number of Shares
Outstanding–December 31, 2004	$	11.09		673,703
Granted		–		–
Exercised		–		–
Forfeited		10.13		(28,124	)
Outstanding– December 31, 2005		11.12		645,579
Granted		9.03		818,442
Exercised		9.32		(239,757	)
Forfeited		8.89		(132	)
Expired		9.26		(2,574	)
Outstanding– December 31, 2006		10.08		1,221,558
Granted		10.66		54,737
Exercised		8.85		(91,883	)
Forfeited		9.04		(56,362	)
Expired		13.67		(221,628	)
Outstanding– December 31, 2007	$	9.43		906,422

As of December 31, 2007, 2006 and 2005, options to purchase 304,515, 360,505 and 588,453 shares were exercisable.  The weighted average remaining contractual life of the exercisable options was 2.4 years and 0.6 years as of December 31, 2007 and 2006, respectively.  The per-share weighted average grant date fair value of options granted in the years ended December 31, 2007 and 2006 were $3.78 and $3.05, respectively. The fair value of stock options granted was estimated on the dates of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to perform the calculation of 2007 grant date fair value: zero expected dividend yield, 4.63% risk-free interest rate, 5 year expected life, and 30.3% volatility.  The expected life was based on historical exercise behavior and the contractual life of the options.  Due to unavailability of historical company information, volatility was based on average volatilities of similar entities for the appropriate period.  Forfeitures were estimated at 20% for board members, 5% for executives and 10% for all remaining employees.  No options were granted in 2005.  The weighted-average grant date fair value of options vesting during 2007, 2006 and 2005 was $2.84, $1.48 and $1.68, respectively.  As of December 31, 2007 the aggregate intrinsic value of options outstanding and options exercisable was approximately $0.6 million and $0.2 million, respectively.  The total aggregate intrinsic value of options exercised during 2007 and 2006 was approximately $0.1 million and $0.3 million, respectively.  No options were exercised in 2005.

Summary information for option awards expected to vest is as follows:

		Options Outstanding
Range of Exercise Prices		Number Outstanding at December 31, 2007		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Aggregate Intrinsic Value
$	0.00 – $ 8.99		6,701		0.00	$	8.89	$	6,455
	9.00 – 9.99		735,036		3.00		9.02		611,888
	10.00 – 14.00		123,527		2.33		11.98		–
			865,264		2.88	$	9.44	$	618,343

96

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

Summary information for total outstanding option awards is as follows:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding at December 31, 2007		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable at December 31, 2007		Weighted Average Exercise Price
$	0.00 – $ 8.99		6,701		0.00	$	8.89		6,701	$	8.89
	9.00 – 9.99		771,610		3.01		9.02		238,239		9.04
	10.00 – 14.00		128,111		2.39		11.93		59,575		13.46
			906,422		2.90	$	9.43		304,515	$	9.90

In the event that currently outstanding options are exercised, the Company intends to first issue treasury shares to the extent available, or new shares as necessary.

16.   EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 (in thousands, except per share data):

	2007		2006		2005
Numerator:
Net income attributable to common stockholders	$	18,836	$	16,562	$	16,785
Denominator:
Weighted-average shares outstanding (denominator for basic earnings per share)		15,647		14,452		5,367
Plus effect of dilutive securities:
Convertible preferred stock		—		459		4,191
Employee stock options		9		20		4
Weighted-average shares outstanding and assumed conversions (denominator for diluted earnings per share)		15,656		14,931		9,562
Basic earnings per share	$	1.20	$	1.15	$	3.13
Diluted earnings per share	$	1.20	$	1.11	$	1.76

For the years ended December 31, 2007, 2006 and 2005, outstanding employee stock options of 879,856, 1,134,979 and 558,483 have been excluded from the computation of diluted earnings per share since they are anti-dilutive.

All share and per share amounts in the condensed consolidated financial statements have been restated to give effect to the 1-for-2.2904 reverse common stock split effected by AmCOMP on February 6, 2006. The stock split was effected as a stock dividend.

17.   REGULATORY EVENTS

On August 24, 2007, the National Council on Compensation Insurance (“NCCI”) submitted its annual workers’ compensation rate filing to the Florida Office of Insurance Regulation (the “Florida OIR”), which called for a statewide average 16.5% rate decrease. Significant declines in claim frequency and an improvement in loss development since the legislature enacted the 2003 reforms are the two main reasons for the proposed premium level decrease. On October 29, 2007, NCCI submitted an amended filing calling for a statewide decrease of 18.4%, which was approved by the Florida OIR on October 31, 2007. The new rates apply to all new and renewal policies as of January 1, 2008.  The effect of the approved decrease cannot currently be ascertained.

97

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

On March 19, 2007, the Company received a Notice of Intent to Issue Order to Return Excessive Profit signed March 14, 2007 (the “Notice”) from the Florida OIR.  The Notice indicates on a preliminary basis that Florida OIR proposes to make a finding, following its review of data submitted by the Company on July 1, 2006 for accident years 2002, 2003 and 2004, that Florida excessive profits (as defined in Florida Statute Section 627.215) in the amount of $5,663,805 have been realized by the Company.  Florida excessive profits under the statute are required to be returned to policyholders under methods defined in the statute. Upon receipt of the Notice, and upon further review by the Company of the data previously submitted, the Company amended its filings to the Florida OIR responding to the Notice and amending the deductible expense items that are utilized in the calculation of Florida excessive profits. These filings amend and increase the expenses the Company believes are permitted by the statute in calculating Florida excessive profits.

The Company, through outside regulatory counsel, has submitted its amended filings to Florida OIR for the years 2002, 2003 and 2004. The amended filings report no Florida excessive profits for the reporting periods. In the event Florida OIR does not agree with the amended filings as submitted by the Company, there would be a disputed issue of material fact and law regarding the calculation of Florida excessive profits. The Company has preserved its right to an administrative hearing under the provisions of the Notice and Florida Statute Chapter 120 (the Florida Administrative Procedures Act). Under Chapter 120, the Company is entitled to a de novo proceeding on the issues described above.  If the administrative ruling is adverse to the Company, the Company would have further appellate rights to the District Court of Appeal.  Management of the Company believes, in part based on advice from legal counsel, that Florida excessive profits were not, in fact, earned in Florida for the years 2002, 2003, and 2004. As of December 31, 2007, no accrual for Florida excessive profits has been provided for the 2002, 2003 and 2004 years.

18.   QUARTERLY RESULTS FOR 2007 AND 2006 (UNAUDITED)

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2007
Revenues	$	64,105	$	60,171	$	62,961	$	61,868
Expenses		58,009		51,596		52,133		57,069
Net income		4,020		5,527		6,876		2,413
Basic earnings per share		0.26		0.35		0.44		0.16
Diluted earnings per share		0.25		0.35		0.44		0.16
2006
Revenues	$	70,099	$	72,524	$	72,572	$	68,748
Expenses		60,769		65,428		65,376		67,552
Net income		5,975		5,007		4,324		1,256
Basic earnings per share		0.54		0.31		0.28		0.08
Diluted earnings per share		0.46		0.31		0.28		0.08

19.   SUBSEQUENT EVENTS

On September 4, 2007, the Company obtained a commitment for a $30 million secured non-revolving line of credit from Regions Bank.  Under the terms of the commitment for the loan, the interest rate is a floating rate of 160 basis points over LIBOR.  Advances under the commitment will be available for up to two years from the date of closing.  Fundings under the commitment will have a seven-year fully amortizing term and can be repaid at any time without penalty.  The loan has no fees associated with it other than a ¼% non-usage fee per annum pro-rated for the amount of loan principal which is not drawn down by AmCOMP.  Any advances under the line of credit are to be collateralized by the stock of a wholly-owned insurance subsidiary of AmCOMP and certain intercompany surplus notes.  The loan is designated for strategic and general corporate purposes.  At AmCOMP’s request Regions Bank extended the closing date of the commitment through June 15, 2008.

98

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

On January 10, 2008, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Employers Holdings, Inc., a Nevada corporation ("Employers") and Sapphire Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Employers ("Merger Sub"), providing for the acquisition of the Company by Employers.

Pursuant to the Merger Agreement, each issued and outstanding share of common stock, $0.01 par value, of the Company, other than dissenting shares or shares owned by the Company as treasury stock, or by Employers or Merger Sub, will be converted into the right to receive $12.50 per share in cash. As part of the Merger Agreement, Merger Sub will merge with and into the Company with the Company being the surviving corporation in the merger. The Board of Directors of the Company and Employers each approved the entry into the Merger Agreement.

The Merger Agreement and related transactions are subject to the approval of the Company's stockholders, the expiration or termination of applicable waiting periods under the Hart–Scott–Rodino Antitrust Improvements Act of 1976, as amended, the receipt of other material regulatory approvals, including from the Florida Office of Insurance Regulation, and certain other customary closing conditions.  The merger and related transactions are expected to be completed by the end of the second quarter of 2008.

Employers may terminate the Merger Agreement under certain circumstances, including if the Company’s Board of Directors changes or withdraws its recommendation that the Company stockholders adopt the Merger Agreement or under other circumstances involving a competing offer to acquire the Company. In connection with such termination, the Company may be required to pay a fee of $8 million to Employers. The Company may terminate the Merger Agreement as a result of Employers’ material breach of any of its representations, warranties, covenants or agreements under the Merger Agreement. In connection with Employers’ breach of any of its covenants or agreements or of its representation and warranty that is has sufficient funds to complete the transaction, Employers may be required to pay a termination fee of $8 million to the Company.

In connection with the Merger Agreement, the Company and Employers entered into Integration Bonus and Enhanced Severance Agreements, effective as of January 10, 2008 (together, the “Severance Agreements”), with Employers and each of Debra Cerre-Ruedisili, the Executive Vice President and Chief Operating Officer of the Company, and Kumar Gursahaney, the Senior Vice President and Chief Financial Officer of the Company (the “Executives”).

Under the Severance Agreements, each of the Executive’s employment with the Company will terminate on the date that is 60 calendar days following the closing of the Merger (the “Separation Date”).  The Executives have each agreed to use best efforts to ensure a smooth transition and integration in the Merger and to perform certain other duties prior to and following the closing of the Merger.  In consideration of the above, and subject to the consummation of the Merger, provided that the Executive either remains employed by the Company through the Separation Date or is terminated by Employers or the Company other than for cause on or prior to the Separation Date, the Executive will be entitled to receive a bonus in an amount equal to $200,000 in the case of Ms. Cerre-Ruedisili and $110,000 in the case of Mr. Gursahaney, as soon as practicable, but in no event later than, 15 calendar days following the Separation Date.

99

AmCOMP INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

In addition, provided that such Executive remains employed by the Company through the Separation Date, or is terminated by the Company or Employers other than due to death, disability or for cause at any time following the closing of the Merger, then in lieu of payments set forth in Section 7(c) of such Executive’s employment agreement, Employers will pay or will cause the Company to pay to such Executive 18 months of severance pay, each monthly payment in an amount equal to the sum of (i) one-sixth of annual salary in the case of Ms. Cerre-Ruedisili, and one-eighth of annual salary in the case of Mr. Gursahaney, each as in effect immediately prior to such termination and (ii) one-twelfth of the amount of incentive compensation and bonuses approved and accrued for such Executive in respect of the most recent fiscal year preceding such termination. The Executives will also be entitled to continued eligibility to participate in any medical and health plans or other employee welfare benefit plans that may be provided by the Company for its senior executive employees for 18 months following the Separation Date.

Each Executive has also acknowledged and agreed that such Executive will continue to be subject to the terms and conditions of the restrictive covenants set forth in Section 9 of such Executive’s employment agreement with the Company for the 18-month period set forth therein (the “Restricted Period”).  The Executives have each further agreed to be available to the Company and Employers and to assist the Company and Employers during the Restricted Period in performing such duties as the Company or Employers may request from time to time.

On March 4, 2008, a purported class-action complaint was filed in the Circuit Court of the 15th Judicial Circuit, in and for Palm Beach County, Florida, on behalf of Broadbased Equities, an alleged stockholder of the Company, and all others similarly situated. The complaint, which names as defendants the Company, the Company’s directors Fred R. Lowe, Debra Cerre-Ruedisili, Sam A. Stephens, Paul B. Queally, Donald C. Stewart and Spencer L. Cullen, Jr., and Employers, asserts claims related to the proposed transaction with Employers for breaches of fiduciary duty and, in the case of Employers, aiding and abetting such breaches, in connection with the directors’ determination to sell the Company.  The complaint seeks a declaratory judgment that the defendants have breached their fiduciary duties to plaintiff and the purported class members and/or, in the case of Employers, aided and abetted such breaches, compensatory and/or rescissory damages, as well as pre and post-trial interest, as allowed by law, and the costs and disbursements of the action, including reasonable attorneys' and experts' fees and other costs. The Company believes that these claims are without merit and intends to defend this action vigorously and, therefore, no provision for this litigation has been made in the current financial statements.

100

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

AmCOMP’s management, with the participation of AmCOMP’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of AmCOMP’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, AmCOMP’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, AmCOMP’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by AmCOMP in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by AmCOMP in the reports that it files or submits under the Exchange Act is accumulated and communicated to AmCOMP’s management, including AmCOMP’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is also responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2007. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of December 31, 2007. Johnson Lambert & Co. LLP, the Company’s independent registered public accounting firm, has issued an opinion on the Company’s internal control over financial reporting as of December 31, 2007, which appears herein.

Changes in Internal Control Over Financial Reporting.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

Not Applicable.

101

PART III

Item 10.  Directors and Executive Officers of the Registrant

           The information required by this Item will be contained in our definitive proxy statement issued in connection with the 2008 annual meeting of stockholders filed with the SEC within 120 days after December 31, 2007 and is incorporated herein by reference.  If we do not file a definitive proxy statement in connection with the 2008 annual meeting of stockholders with the SEC within 120 days after December 31, 2007, we will file such information with the SEC pursuant to an amendment to this Form 10-K within 120 days after December 31, 2007.

Item 11.  Executive Compensation

The information required by this Item will be contained in our definitive proxy statement issued in connection with the 2008 annual meeting of stockholders filed with the SEC within 120 days after December 31, 2007 and is incorporated herein by reference.  If we do not file a definitive proxy statement in connection with the 2008 annual meeting of stockholders with the SEC within 120 days after December 31, 2007, we will file such information with the SEC pursuant to an amendment to this Form 10-K within 120 days after December 31, 2007.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information required by this Item will be contained in our definitive proxy statement issued in connection with the 2008 annual meeting of stockholders filed with the SEC within 120 days after December 31, 2007 and is incorporated herein by reference.  If we do not file a definitive proxy statement in connection with the 2008 annual meeting of stockholders with the SEC within 120 days after December 31, 2007, we will file such information with the SEC pursuant to an amendment to this Form 10-K within 120 days after December 31, 2007.

Item 13.  Certain Relationships and Related Transactions

The information required by this Item will be contained in our definitive proxy statement issued in connection with the 2008 annual meeting of stockholders filed with the SEC within 120 days after December 31, 2007 and is incorporated herein by reference.  If we do not file a definitive proxy statement in connection with the 2008 annual meeting of stockholders with the SEC within 120 days after December 31, 2007, we will file such information with the SEC pursuant to an amendment to this Form 10-K within 120 days after December 31, 2007.

Item 14.  Principal Accounting Fees and Services

The information required by this Item will be contained in our definitive proxy statement issued in connection with the 2008 annual meeting of stockholders filed with the SEC within 120 days after December 31, 2007 and is incorporated herein by reference.  If we do not file a definitive proxy statement in connection with the 2008 annual meeting of stockholders with the SEC within 120 days after December 31, 2007, we will file such information with the SEC pursuant to an amendment to this Form 10-K within 120 days after December 31, 2007.

102

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a) List of documents filed as part of this report:

1. Financial Statements as of December 31, 2007 and December 31, 2006 and for the three years ended December 31, 2007 included in Part II of this Form 10-K:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

The following financial statement schedules are filed as part of this Report.

Schedule II – Condensed Financial Information of Parent Company

Schedule V – Valuation and Qualifying Accounts

Schedule VI—Supplemental Information Concerning Property-Casualty Insurance Operations

Schedules not filed herewith are either not applicable, the information is not material or the information is set forth in the Consolidated Financial Statements or notes thereto.

103

AmCOMP Incorporated

Schedule II—Condensed Financial Information of Parent Company

Condensed Balance Sheets

	December 31,
	2007		2006
	(In Thousands)
Assets
Cash and cash equivalents	$	3,534	$	5,799
Fixed maturity securities available-for-sale at fair value (amortized cost of $5,000,000 in 2006)		–		5,000
Investment in subsidiaries		148,495		127,518
Surplus notes receivable from affiliates		25,500		25,500
Interest receivable on surplus notes receivable from affiliates		2,539		2,552
Other assets		157		91
Income tax recoverable		962		3,102
	$	181,187	$	169,562
Liabilities and Stockholders’ Equity
Deferred income taxes	$	926	$	951
Note payable		4,464		6,250
Payable to affiliated companies		16,105		22,824
Income tax payable		1,441		–
Other liabilities		74		249
Stockholders’ Equity
Common stock		159		158
Other stockholders’ equity		158,018		139,130
Total stockholders’ equity		158,177		139,288
	$	181,187	$	169,562

See accompanying notes to condensed financial statements

104

AmCOMP Incorporated

Condensed Statements of Operations

	Year Ended December 31,
	2007		2006		2005
	(In Thousands)
Revenues
Interest income	$	2,944	$	2,770	$	1,955
Expenses
Other operating expenses		235		159		62
Interest expense		393		529		545
Total expenses		628		688		607
Income before income taxes and equity in undistributed earnings of consolidated subsidiaries		2,316		2,082		1,348
Income tax (benefit) expense		452		797		(279	)
Equity in undistributed earnings of consolidated subsidiaries		16,972		15,277		15,158
Net Income	$	18,836	$	16,562	$	16,785

See accompanying notes to condensed financial statements

105

AmCOMP Incorporated

Condensed Statements of Cash Flows

	Year Ended December 31,
	2007			2006			2005
	(In Thousands)
Operating Activities:
Net income	$	18,836		$	16,562		$	16,785
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax benefits from exercise of options		(41	)		(162	)		—
Equity in earnings of subsidiaries		(16,972	)		(15,277	)		(15,158	)
Stock Option expense		702			545			—
Interest receivable on surplus notes receivable from affiliates		13			2,100			(1,917	)
Deferred income taxes		(25	)		(576	)		24
Income tax recoverable		3,596			(2,023	)		1,961
Other assets and other liabilities		(66	)		1,389			(1,365	)
Payable to affiliated companies		(6,719	)		4,372			890
Accounts payable and accrued expenses		(175	)		(290	)		542
Net cash provided by operating activities		(851	)		6,640			1,762
Investing Activities:
Securities available-for-sale:
Purchases		(5,000	)		(7,000	)		—
Sales and maturities		10,000			2,000			—
Investment in subsidiary		—			(45,000	)		—
Net cash used in investing activities		5,000			(50,000	)		—
Financing activities:
Proceeds from initial public offering		—			47,972			—
Proceeds from option exercise		812			1,828			—
Excess tax benefits from exercise of options		41			162			—
Purchase of treasury stock		(5,481	)		—			—
Payment of note payable		(1,786	)		(1,786	)		(1,785	)
Net cash provided by (used in) financing activities		(6,414	)		48,176			(1,785	)
Net increase(decrease) in cash		(2,265	)		4,816			(23	)
Cash at beginning of year		5,799			983			1,006
Cash at end of the year	$	3,534		$	5,799		$	983

See accompanying notes to condensed financial statements

106

AmCOMP Incorporated

Notes to Condensed Financial Statements

Years Ended December 31, 2007, 2006 and 2005

1. Accounting Policies

Organization

AmCOMP Incorporated (the “Company”) is a Delaware-domiciled holding company organized for the purpose of acquiring and managing insurance entities.

Basis of Presentation

The condensed financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States.

The accompanying condensed financial statements have been prepared using the equity method to account for investments in subsidiaries.  Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings (loss) of consolidated subsidiaries since the date of acquisition.  These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements.

Estimates and Assumptions

Preparation of the condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying disclosures.  Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

2.Note Payable

On October 12, 2000, the Company entered into a credit facility (the “Loan”) with a financial institution under which the Company borrowed $11.3 million.  The Loan calls for monthly interest payments at the 30-day LIBOR rate plus a margin.  The expiration date on the loan is April 10, 2010.  The Loan is collateralized by $25.5 million of surplus notes issued by AmCOMP Preferred and AmCOMP Assurance and the stock of AmCOMP Preferred.  During 2003, the remaining balance of the Loan was refinanced and the Company borrowed an additional $5.5 million.  At December 31, 2007 and 2006, the principal balance was $4.5 million and $6.3 million, respectively.

Maturities of the Loan at December 31, 2007 are as follows (in thousands):

2008	$	1,786
2009		1,786
2010		892
Total	$	4,464

3.Related Party Transactions

On December 30, 1996, the Company loaned $10.0 million to AmCOMP Preferred Insurance Company (“AmComp Preferred”) and received a surplus note in the same amount.  The note provides for quarterly interest payments beginning on March 31, 1997 and payment of the principal on September 15, 2009.  Interest accrues at an annual rate of 100 basis points in excess of the prime rate, which was 9.25% at December 31, 2007.  Both the payment of interest and principal require approval of the Florida Department of Financial Services (“FDFS”).  Interest income was $0.9 million, $0.8 million and $0.6 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Approved interest paid during the years ended December 31, 2007 and 2006 totaled $1.8 million and $1.6 million, respectively.  Earned but unpaid interest as of December 31, 2007 and 2006 was $0.1 million and $0.8 million, respectively.

107

AmCOMP Incorporated

Notes to Condensed Financial Statements

Years Ended December 31, 2007, 2006 and 2005

On December 31, 2000, the Company loaned $5.0 million to AmCOMP Assurance Corporation (“AmComp Assurance”) and received a surplus note in the same amount.  The note provides for quarterly interest payments beginning on March 31, 2001 and payment of the principal on March 31, 2006.  Interest accrues at an annual rate of 10.0%.  Both the payment of interest and principal require approval of the FDFS.  Interest income was $0.5 million, $0.5 million and $0.5 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Approved interest paid during the year ended December 31, 2006 totaled $1.4 million. Earned but unpaid interest as of December 31, 2007 and 2006 was $1.1 million and $0.6 million, respectively.

On December 31, 2002, the Company loaned $2.0 million to AmCOMP Assurance and received a surplus note in the same amount.  The note provides for quarterly interest payments beginning on March 31, 2003 and payment of the principal on March 31, 2008.  Interest accrues at an annual rate of 450 basis points in excess of the LIBOR, which was 9.86% at December 31, 2007.  Both the payment of interest and principal require approval of the FDFS.  Interest income was $0.2 million, $0.2 million and $0.2 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Approved interest paid during the years ended December 31, 2007 and 2006 totaled $0.4 million and $0.3 million, respectively.  Earned but unpaid interest as of December 31, 2007 and 2006 was less than $0.1 million and $0.2 million, respectively.

On March 31, 2003, the Company loaned $2.0 million to AmCOMP Assurance and received a surplus note in the same amount.  The note provides for quarterly interest payments beginning on June 30, 2003 and payment of the principal on March 31, 2008.  Interest accrues at an annual rate of 450 basis points in excess of LIBOR, which was 9.86% at December 31, 2007.  Both the payment of interest and principal require approval of the FDFS.  Interest income was $0.2 million, $0.2 million and $0.2 million for the years ended December 31, 2007, 2006 and 2005, respectively.  Approved interest paid during the years ended December 31, 2007 and 2006 totaled $0.4 million and $0.3 million, respectively.  Earned but unpaid interest as of December 31, 2007 and 2006 was less than $0.1 million and $0.2 million, respectively.

On December 4, 2003, the Company loaned $6.5 million to AmCOMP Assurance and received a surplus note in the same amount.  The note provides for quarterly interest payments beginning on March 31, 2004 and repayment of the principal on December 31, 2008.  Interest accrues at an annual rate of 450 basis points in excess of LIBOR, which was 9.86% at December 31, 2007.  Both the payment of interest and principal require approval of the FDFS.  Interest income was $0.6 million, $0.6 million and $0.5 million for the years ended December 31, 2007, 2006 and 2005 respectively. Approved interest paid during the year ended December 31, 2006 totaled $0.8 million.  Earned but unpaid interest as of December 31, 2007 and 2005 was $1.3 million and $0.7 million, respectively

  As the Company does not keep significant cash on hand, it may find it necessary to borrow funds from subsidiaries to make tax, debt or other payments.  Additionally, as the Company files a consolidated tax return with its affiliates, it makes tax payments on behalf of subsidiaries, thereby creating a receivable from affiliates balance.  The tax allocation method between affiliates is subject to a written tax sharing agreement under which each company pays a share of the total tax liability determined as if computed separately.  The borrowings from affiliates, offset by receivables from affiliates, and interest receivable on surplus notes are recorded in the Receivable from or Payable to Affiliated Companies line items on the balance sheet.  As of December 31, 2007 and 2006, the Company had recorded approximately $16.1 million and $22.8 million, respectively, of net payables to affiliates.

108

AmCOMP Incorporated

Notes to Condensed Financial Statements

Years Ended December 31, 2007, 2006 and 2005

4.Federal and State Income Taxes

Income tax expense (benefit) for the years ended December 31, 2007, 2006 and 2005 was allocated as follows:

	2007			2006			2005
Current expense (benefit)
Federal	$	472		$	1,371		$	(329	)
State		5			164			26
Total current (benefit) expense		477			1,535			(303	)
Deferred (benefit) expense
Federal		(25	)		(665	)		22
State		—			(73	)		2
Total deferred (benefit) expense		(25	)		(738	)		24
Total tax expense (benefit)	$	452		$	797		$	(279	)

AmCOMP’s effective income tax rate differed from the statutory income tax rate for the years ended December 31, 2007, 2006 and 2005 as follows:

	2007			%			2006			%			2005			%
Statutory federal income tax rate	$	811			35.0	%	$	729			35.0	%	$	457			35.0	%
Increases (reductions) in tax resulting from:
Surplus notes interest income deferred		—			—			—			—			(647	)		(49.6	)
Tax-exempt interest		(84	)		(3.6	)		(39	)		(0.9	)		—			—
Prior year provision to return adjustment		(241	)		(10.4	)		(3	)		(0.1	)		122			9.3
State tax		(34	)		(1.5	)		59			2.8			(211	)		(16.1	)
Other		—			—			51			1.5			—			—
	$	452			19.5	%	$	797			38.3	%	$	(279	)		(21.4	)%

The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities included at December 31, 2007 and 2006 are presented below:

	2007		2006
Deferred Tax Liabilities:
Surplus Notes Interest Receivable	$	926	$	951

109

AmCOMP Incorporated and Subsidiaries

Schedule V—Valuation and Qualifying Accounts

(in thousands)

			Additions
	Balance at beginning of period		(Credited)/ charged to costs and expenses			Charged to other accounts		Deductions (1)			Balance at end of period
Year ended December 31, 2007
Allowance for uncollectible:
Premiums in course of collection	$	4,106	$	(80	)	$	—	$	(1,288	)	$	2,738
Year ended December 31, 2006
Allowance for uncollectible:
Premiums in course of collection	$	4,887	$	987		$	—	$	(1,768	)	$	4,106
Year ended December 31, 2005
Allowance for uncollectible:
Premiums in course of collection	$	6,000	$	1,525		$	—	$	(2,638	)	$	4,887

_________________

(1) Deductions include write-offs of amounts determined to be uncollectible.

AmCOMP Incorporated and Subsidiaries

Schedule VI—Supplemental Information Concerning Property-Casualty Insurance Operations

(in thousands)

	Affiliations	Deferred Policy		Reserves for Unpaid Claims and Claims		Discount if any Deducted		Unearned and		Net		Net		Claims and Claims Adjustment Expense Incurred Related to					Amortization of Deferred Policy		Paid Claims and Claims		Net
	With Registrant	Acquisition Costs		Adjustment Expenses		in Column C (1)		Advanced Premiums		Premiums Earned		Investment Income		Current Year		Prior Years			Acquisition Costs		Adjustment Expenses		Premiums Written
	Consolidated Property and Casualty Subsidiaries
2007		$	19,116	$	324,224	$	–	$	102,672	$	229,349	$	20,102	$	163,070	$	(36,508	)	$	44,469	$	130,758	$	221,084
2006			20,749		334,363		–		115,218		266,456		17,461		177,841		(14,171	)		49,410		132,801		264,788
2005			19,413		309,857		–		115,574		256,603		10,798		168,355		(24,692	)		42,955		103,008		267,652

_________________

(1) We discount the indemnity portion of loss reserves for select policies issued in Texas that have fixed or determinable future payment.  The total amount of this discount is not material to the financial statements.

110

3. Exhibit Index

The following is a list of exhibits filed as part of this Form 10-K:

Exhibit Index

Number	Description of Exhibit
2.1	Agreement and Plan of Merger by and among the Registrant, Employers Holdings, Inc. and Sapphire Acquisition Corp., dated as of January 10, 2008 (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, filed on January 11, 2008).
3.1	Form of Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-128272) (the “Form S-1”).
3.2	Form of Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Form S-1).
3.3	Amended and Restated Bylaws of the Registrant, as of September 28, 2007 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K, filed on October 4, 2007).
4.1	Specimen Certificate for the Registrant’s common stock (incorporated by reference to Exhibit 4.1 to the Form S-1).
4.2	Indenture, dated April 30, 2004, by and between AmCOMP Preferred Insurance Company and JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.2 to the Form S-1).
4.3	Indenture, dated May 26, 2004, by and between AmCOMP Preferred Insurance Company and JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.3 to the Form S-1).
4.4	Indenture, dated September 14, 2004, by and between AmCOMP Preferred Insurance Company and JP Morgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to the Form S-1).
10.1	Registration Rights Agreement, dated as of January 26, 1996, by and among the Registrant and the stockholders party thereto (incorporated by reference to Exhibit 10.1 to the Form S-1).
10.2	Amendment No. 1 to Stockholders Agreement and Registration Rights Agreement dated July 8, 1996 by and among the Registrant, Florida Administrators, Inc. and the stockholders party thereto (incorporated by reference to Exhibit 10.2 to the Form S-1).
10.3	Loan Agreement, dated October 12, 2000, by and between the Registrant and AmSouth Bank (incorporated by reference to Exhibit 10.3 to the Form S-1).
10.4	First Amendment to Loan Agreement, dated April 25, 2003, by and between the Registrant and AmSouth Bank (incorporated by reference to Exhibit 10.4 to the Form S-1).
10.5	Second Amendment to Loan Agreement, dated April 23, 2004, by and between the Registrant and AmSouth Bank (incorporated by reference to Exhibit 10.5 to the Form S-1).
10.6	Third Amendment to Loan Agreement, dated August 23, 2005, by and between the Registrant and AmSouth Bank (incorporated by reference to Exhibit 10.6 to the Form S-1).
+10.7	1996 Stock Option Plan of the Registrant, as amended (incorporated by reference to Exhibit 10.7 to the Company’s Form S-1).
+10.8	Amended and Restated Directors’ Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.8 to the Form S-1).
+10.9	Form of 2005 Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.9 to the Form S-1).
+10.10	Form of Stock Option Award Agreement of the Registrant for options granted under the Registrant’s stock option plans (incorporated by reference to Exhibit 10.10 to the Form S-1).
+10.11	Amended and Restated Employment Agreement, dated as of August 22, 2005, by and between the Registrant and Fred R. Lowe (incorporated by reference to Exhibit 10.11 to the Form S-1).
+10.12	Amended and Restated Employment Agreement, dated as of August 22, 2005, by and between the Registrant and Debra Cerre-Ruedisili (incorporated by reference to Exhibit 10.12 to the Form S-1).
+10.13	Amended and Restated Employment Agreement dated as of August 22, 2005, by and between the Registrant and Kumar Gursahaney (incorporated by reference to Exhibit 10.13 to the Form S-1).
+10.14	Form of Executive Employment Agreement by and between the Registrant and other executive employees (incorporated by reference to Exhibit 10.14 to the Form S-1).
+10.15	Form of Indemnification Agreement by and between the Registrant and its directors and officers (incorporated by reference to Exhibit 10.15 to the Form S-1).
10.16	Lease Agreement for North Palm Beach Facility, dated December 31, 2001, by and between 701 U.S. Highway 1, Inc. and AmCOMP Preferred Insurance Company (incorporated by reference to Exhibit 10.16 to the Form S-1).
10.17	Office Lease Agreement for Maitland Facility, dated March 17, 1997, by and between Lincoln -300 Lincoln Place, Ltd. and Pinnacle Assurance Corporation (incorporated by reference to Exhibit 10.17 to the Form S-1).
10.18	First Amendment to Lease Agreement for Maitland Facility, dated December 1, 2002, by and among Brookhaven (Maitland), LLC, Kpers Realty Holding Co. # 31, Inc. and AmCOMP Preferred Insurance Company (incorporated by reference to Exhibit 10.18 to the Form S-1).

111

10.19	Second Amendment to Lease Agreement for Maitland Facility, dated May 25, 2004, by and between Kpers Realty Holding Co. # 31, Inc. and AmCOMP Preferred Insurance Company (incorporated by reference to Exhibit 10.19 to the Form S-1).
10.20	Purchase Agreement, dated April 29, 2004, by and between AmCOMP Preferred Insurance Company and Dekania CDO II, Ltd. (incorporated by reference to Exhibit 10.20 to the Form S-1).
10.21	Floating Rate Surplus Note, dated April 29, 2004, from AmCOMP Preferred Insurance Company to Cede & Co., for $10.0 million (incorporated by reference to Exhibit 10.21 to the Form S-1).
10.22	Purchase Agreement, dated May 26, 2004, by and between AmCOMP Preferred Insurance Company and Icons, Ltd. (incorporated by reference to Exhibit 10.22 to the Form S-1).
10.23	Floating Rate Surplus Note, dated May 26, 2004, from AmCOMP Preferred Insurance Company to JP Morgan Chase Bank, as trustee, for $12.0 million (incorporated by reference to Exhibit 10.23 to the Form S-1).
10.24	Purchase Agreement, dated September 14, 2004, by and between AmCOMP Preferred Insurance Company and Alesco Preferred Funding V, Ltd. (incorporated by reference to Exhibit 10.24 to the Form S-1).
10.25	Floating Rate Surplus Note, dated September 14, 2004, from AmCOMP Preferred Insurance Company to Sigler & Co., for $10.0 million (incorporated by reference to Exhibit 10.25 to the Form S-1).
10.26	Amended Tax Allocation Agreement, dated January 1, 1998, by and among the Registrant, AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation, Pinnacle Administrative Company and Pinnacle Benefits, Inc. (incorporated by reference to Exhibit 10.26 to the Form S-1).
10.27	Service Company Contract, dated April 7, 1995, by and between FAI and Compensation Benefits, Inc. (incorporated by reference to Exhibit 10.27 to the Form S-1).
10.28	Amendment to Service Company Contract, dated January 26, 1996, by and between FAI and Compensation Benefits, Inc. (incorporated by reference to Exhibit 10.28 to the Form S-1).
10.29	Second Amendment to Service Company Contract, dated January 1, 2000, by and between Pinnacle Administrative Company and Pinnacle Benefits, Inc. (incorporated by reference to Exhibit 10.29 to the Form S-1).
10.30	Third Amendment to Service Company Contract, dated December 16, 1997, by and between Pinnacle Administrative Company and Pinnacle Benefits, Inc. (incorporated by reference to Exhibit 10.30 to the Form S-1).
10.31	Fourth Amendment to Service Company Contract, dated January 1, 2000, by and between Pinnacle Administrative Company and Pinnacle Benefits, Inc. (incorporated by reference to Exhibit 10.31 to the Form S-1).
10.32	Management Company Contract, dated April 7, 1995, by and between Pinnacle Assurance Corporation and FAI (incorporated by reference to Exhibit 10.32 to the Form S-1).
10.33	Amendment to Management Company Contract, dated January 26, 1996, by and between Pinnacle Assurance Corporation and FAI (incorporated by reference to Exhibit 10.33 to the Form S-1).
10.34	Second Amendment to Management Company Contract, dated January 1, 2000, by and between Pinnacle Assurance Corporation and FAI (incorporated by reference to Exhibit 10.34 to the Form S-1).
10.35	Management Company Contract, dated December 16, 1997 by and between AmCOMP Assurance Corporation and Pinnacle Administrative Company (incorporated by reference to Exhibit 10.35 to the Form S-1).
10.36	Reinsurance Pooling Agreement, dated May 10, 2001, by and between AmCOMP Preferred Insurance Company and AmCOMP Assurance Corporation (incorporated by reference to Exhibit 10.36 to the Form S-1).
10.37	First Amendment to Reinsurance Pooling Agreement, dated December 31, 2003, by and between AmCOMP Preferred Insurance Company and AmCOMP Assurance Corporation (incorporated by reference to Exhibit 10.37 to the Form S-1).
10.38	Workers Compensation and Employers Liability Statutory Excess of Loss Reinsurance Agreement, effective January 1, 1999, issued to Pinnacle Assurance Corporation, AmComp Preferred Insurance Company, Thomas Jefferson Insurance Company and AmComp Insurance Company by Jardine Sayer & Company, Inc. (incorporated by reference to Exhibit 10.38 to the Form S-1).
10.39	Workers’ Compensation and Employers Liability Quota Share Reinsurance Agreement between AmCOMP Assurance Company and/or AmCOMP Preferred Insurance Company, and/or Pinnacle Assurance Corporation, and/or Thomas Jefferson Insurance Company and Swiss Reinsurance America Corporation (incorporated by reference to Exhibit 10.39 to the Form S-1).
10.40	Underlying Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2002, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group by American Re-Insurance Company (incorporated by reference to Exhibit 10.40 to the Form S-1).
10.41	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2002, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.41 to the Form S-1).

112

10.42	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2002, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.42 to the Form S-1).
10.43	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2003, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.43 to the Form S-1).
10.44	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2003, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.44 to the Form S-1).
10.45	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2004, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.45 to the Form S-1).
10.46	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2004, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.46 to the Form S-1).
10.47	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2005, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.47 to the Form S-1).
10.48	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2005, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.48 to the Form S-1).
10.49	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2006, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.49 to the Form S-1).
10.50	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2006, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference to Exhibit 10.50 to the Form S-1).
10.51	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2007, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference Exhibit 10.51 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006)..
10.52	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2007, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group (incorporated by reference Exhibit 10.52 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006).
*10.53	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2008, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group – 75% participation.
*10.54	Excess Workers’ Compensation Reinsurance Contract, effective January 1, 2008, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group – 25% participation.
*10.55	Catastrophe Workers’ Compensation Reinsurance Contract, effective January 1, 2008, issued to AmCOMP Preferred Insurance Company, AmCOMP Assurance Corporation and any and all insurance companies which are now or hereafter come under the same ownership or management as the AmCOMP Group.
10.56	Integration Bonus and Enhanced Severance Agreement by and among the Registrant, Employers Holdings, Inc. and Debra Cerre-Ruedisili, dated as of January 31, 2008, effective as of January 10, 2008 (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on February 1, 2008).

113

10.57	Integration Bonus and Enhanced Severance Agreement by and among the Registrant, Employers Holdings, Inc. and Kumar Gursahaney, dated as of January 31, 2008, effective as of January 10, 2008 (incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on February 1, 2008).
14	Code of Business Ethics and Conduct.
16	Letter from Deloitte & Touche LLP dated April 11, 2007 (incorporated by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K, filed on April 11, 2007).
21	Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Form S-1).
*23.1	Consent of Independent Registered Public Accounting Firm – Deloitte & Touche LLP
*23.2	Consent of Independent Registered Public Accounting Firm – Johnson Lambert & Co., LLP
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification 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.

_________________

* Filed herewith.

+ Indicates those contracts that are management contracts or compensation plans or arrangements.

114

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of North Palm Beach, State of Florida on the 5th day of March, 2008.

AMCOMP INCORPORATED
(Registrant)
By:	/s/ Fred R. Lowe
	Fred R. Lowe
	President and Chief Executive Officer

POWER OF ATTORNEY

The Company and each of the undersigned do hereby appoint Fred R. Lowe, Debra Cerre-Ruedisili and Kumar Gursahaney, and each of them severally, its or his true and lawful attorney to execute on behalf of the Company and the undersigned any and all amendments to this Annual Report on Form 10-K and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission; each of such attorneys shall have the power to act hereunder with or without the other.

In accordance with the Exchange Act, 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/ Fred R. Lowe	Chairman of the Board, President and Chief Executive Officer (principal executive officer)	March 5, 2008
Fred R. Lowe
/s/ Debra Cerre-Ruedisili	Executive Vice President, Chief Operating Officer and Director	March 5, 2008
Debra Cerre-Ruedisili
/s/ Kumar Gursahaney	Senior Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)	March 5, 2008
Kumar Gursahaney
/s/ Sam A. Stephens	Director	March 5, 2008
Sam A. Stephens
	Director
Paul B. Queally
/s/ Spencer L. Cullen, Jr.	Director	March 5, 2008
Spencer L. Cullen, Jr.
/s/ Donald C. Stewart	Director	March 5, 2008
Donald C. Stewart

115

EX-10.53

Exhibit 10.53

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

Table of Contents

Article		Page
I	Classes of Business Reinsured	1
II	Commencement and Termination	1
III	Special Termination	2
IV	Territory (BRMA 51A)	3
V	Exclusions	3
VI	Retention and Limit	7
VII	Reinstatement	8
VIII	Definitions	9
IX	Other Reinsurance	12
X	Federal Terrorism Recovery	13
XI	Annuities at Company’s Option	13
XII	Claims	13
XIII	Special Commutation	14
XIV	Salvage and Subrogation	16
XV	Premium	16
XVI	Late Payments	17
XVII	Offset	18
XVIII	Access to Records (BRMA 1D)	18
XIX	Liability of the Reinsurer	18
XX	Net Retained Lines (BRMA 32E)	19
XXI	Errors and Omissions (BRMA 14F)	19
XXII	Currency (BRMA 12A)	19
XXIII	Taxes (BRMA 50B)	19
XXIV	Federal Excise Tax (BRMA 17D)	20
XXV	Reserves	20
XXVI	Insolvency	22
XXVII	Arbitration	22
XXVIII	Service of Suit (BRMA 49C)	23
XXIX	Agency Agreement (BRMA 73A)	24
XXX	Governing Law (BRMA 71B)	24
XXXI	Intermediary (BRMA 23A)	24
	Schedule A

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

(hereinafter referred to collectively as the “Company”)

by

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)

Article I - Classes of  Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called “policies”) in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Workers’ Compensation and Employers Liability business, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

Article II - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, with respect to losses arising out of occurrences commencing at or after that time and date, and shall continue in force thereafter until terminated.

B. Either party may terminate this Contract at 12:01 a.m., Local Standard Time where the occurrence commences, on any January 1 by giving the other party not less than 90 days prior notice by certified mail.

C. Unless the Company elects that the Reinsurer have no liability for losses arising out of occurrences commencing at or after the effective time and date of termination, and so notifies the Reinsurer prior to or as promptly as possible after the effective date of termination, reinsurance hereunder on business in force at the effective time and date of termination shall remain in full force and effect until expiration, cancellation or next premium anniversary of such business, whichever first occurs, but in no event beyond 12 months, plus odd time (not to exceed 18 months in all), following the effective time and date of termination.

1

D. Notwithstanding the provisions above, in the event that any policy subject to this Contract is required by statute, regulation or by order of an insurance department to be continued in force, the Reinsurer agrees to extend reinsurance coverage hereunder following the termination of this Contract with respect to such policy until the first date that the Company may lawfully non-renew, cancel or terminate such policy, whether or not the Company actually does non-renew, cancel or terminate such policy.  However, under no circumstances shall runoff coverage under this paragraph exceed 23 months.

E. “Contract year” as used herein shall mean the period from 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, to 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, and each subsequent 12-month period (or portion thereof) thereafter that this Contract continues in force shall be a separate contract year.  If this Contract is terminated on a “runoff” basis, the period from the effective date of termination through the end of the “runoff” period shall be a separate contract year and referred to as the “runoff contract year.”

Article III - Special Termination

A. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, either party may terminate this Contract at any time by giving the other party not less than 30 days prior written notice in the event any of the following circumstances occur (if terminated by either party, said termination shall be on a “runoff” basis unless the Company elects to have such termination on a “cutoff” basis):

1. The other party’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at the beginning of any contract year has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

2. The other party’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time during the contract year has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) at the date of the other party’s most recent financial statement filed with regulatory authorities and available to the public as of the beginning of the contract year; or

3. The other party has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the other party’s operations previously; however, this subparagraph shall not apply to the sale of stock to a non-acquiring entity or where the acquiring company, corporation or individual(s) has an A.M. Best’s rating higher than the rating held by the other party at the beginning of the contract year; or

2

4. The State Insurance Department or other legal authority in the other party’s state of domicile has ordered the other party to cease writing business; or

5. The other party has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary) or proceedings have been instituted against the other party for the appointment of a receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

6. The other party has ceased writing new and renewal property and casualty business.

B. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, the Company may terminate a Subscribing Reinsurer’s percentage share in this Contract by giving not less than 30 days prior written notice to the Subscribing Reinsurer in the event the Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (includes any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (includes any “NR” rating).

C. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, a Subscribing Reinsurer may terminate its percentage share in this Contract by giving the Company not less than 30 days prior written notice in the event any of the following circumstances occur (said termination shall be on a “runoff” basis unless the Company elects to have such termination on a “cutoff” basis; however, termination shall be on a “cutoff” basis if the Subscribing Reinsurer terminates because the Company has failed to pay premium):

1. 51.0% or more of the Company or its portfolio is purchased or sold; or

2. The Company has failed to pay reinsurance premiums in accordance with this Contract; or

3. A material change has occurred in any two of the Company’s three senior officers (i.e., the Chief Executive Officer, the President, or the Chief Financial Officer).

Article IV - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

Article V - Exclusions

A. This Contract does not apply to and specifically excludes the following:

1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except:

a. Agency reinsurance where the policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company policies at the next anniversary or expiration date;

3

b. Intercompany reinsurance between any of the reinsured companies under this Contract.

2. Ex-gratia payments.

3. Risks subject to a deductible in excess of $25,000, or a self-insured retention excess of $25,000, unless such deductible or self-insured retention is otherwise mandated by statute or regulatory authority.

4. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and loss or liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance - No. 4” attached to and forming part of this Contract.

5. Pollution liability coverages excluded under the provisions of the “Pollution Exclusion Clause - General Liability - Reinsurance (BRMA 39C)” attached to and forming part of this Contract.

6. Liability as a member, subscriber or reinsurer of any Pool, Syndicate or Association, but this exclusion shall not apply to Assigned Risk Plans or similar state-mandated plans.

7. All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

8. Loss or liability as excluded in the “War Risk Exclusion Clause (Reinsurance)” attached to and forming part of this Contract.  However, this exclusion shall not apply to an act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

9. Operation under the jurisdiction of the United States Longshore and Harbor Workers’ Compensation Act or the Jones Act, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

10. Operations employing the process of nuclear fission or fusion or handling of radioactive material, which operations include but are not limited to:

a. The use of nuclear reactors such as atomic piles, particle accelerators or generators; or

b. The use, handling or transportation of radioactive materials, or the use, handling or transportation of any weapon of war or explosive device employing nuclear fission or fusion.

4

However, subparagraphs a and b above shall not apply to:

i. The exclusive use of particle accelerators incidental to ordinary industrial or education research pursuits, or

ii. The exclusive use, handling or transportation of radioisotopes for medical or industrial use, or to radium or radium compounds.

11. Operation of docks or wharves as related to port authorities.

12. The manufacturing, mining, refining, processing, distribution, installation, removal or encapsulment of asbestos.

13. Risks involving known exposure to the following substances:

a. Dioxin;

b. Polychlorinated biphenols;

c. Asbestos.

14. All railway operations except sidetrack agreements.

15. Amusement parks, carnivals or circuses.  This exclusion shall not apply to miniature golf courses or driving range operations.

16. Subaquaeous operations.

17. Underground mining; however, this exclusion shall not be construed to apply to open-pit quarrying or “surface mining” operations.

18. Blasting operations, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

19. Demolition of buildings or structures in excess of five stories.

20. Shoring and moving of buildings or structures, or underpinning that involves pier and beam construction, commercial buildings with more than three stories or hillside building reinforcements.  However, this exclusion shall not apply to foundation repair risks for which neither the insured nor its employees are in tunnels or are otherwise working under buildings.

21. Erection or repair of scaffolds if 10.0% or more of the insured’s annual remuneration is attributed to NCCI Class Code 9534 or 9529.

22. Construction of tunnels or dams.

5

23. Fireworks, fuses, or any explosive substance (as defined below) as follows:

a. Manufacturers or importers of such items;

b. Loading of such items into containers for use as explosive objects, propellant charges or detonation devices and the storage thereof (except as previously provided for, on an incidental basis, in exclusion 18);

c. Manufacturers or importers of any product in which such items are an ingredient;

d. Handling, storage, transportation or use of such items (except as previously provided for, on an incidental basis, in exclusion 18).

“Explosive substance” is defined as any substance manufactured for the express purpose of exploding as differentiated from commodities used industrially and which are only incidentally explosive.

24. Onshore and offshore gas and oil drilling operations.

25. Operations where principal business includes the use of any owned or unowned aircraft, or any device or machine intended for and/or aiding in the achievement of atmospheric flight, projection or orbit, and/or the ownership or operation of any airport.  This exclusion shall not apply where exposure is incidental (i.e., constitutes 10.0% or less of the insured’s payroll) to the principal business operations and the aircraft contains eight seats or fewer.

26. Municipal law enforcement organizations and municipal fire fighting organizations, whether professional or voluntary.  This exclusion shall not apply to off-duty law enforcement officers when employed by an entity other than a municipality for duties performed within the scope of the job for which they were hired.

27. Logging or forestry operations.

28. Professional employment organizations (PEOs).

29. Professional sports teams.

30. Operations where the principal business of the risk is manufacturing, production, distribution, refining or storage of natural or artificial fuel, gas, butane, propane, liquefied petroleum gases or gasoline.  This exclusion shall not apply to any risk whose principal business operations are any of the following:

a. Retail gasoline service station, either full or self service, or retail gasoline marina;

b. Convenience store with gasoline sales with its petroleum gas and/or storage tanks located below ground.

31. Acts of terrorism, as defined in paragraph G of the Definitions Article, that:

a. Involve the use, release or escape of nuclear materials; or

6

b. Directly or indirectly result in nuclear reaction or radiation or radioactive contamination; or

c. Are carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials where it appears that one purpose of the act of terrorism was to release such materials.

32. Business reinsured by the Minnesota Workers’ Compensation Reinsurance Association, whether contractually assumed or imposed by law, including, but not limited to, direct or indirect loss, damage, liability, cost or expense.  However, this exclusion shall not apply to:

a. Losses paid within the Company’s net retention; or

b. Losses paid in excess of the benefits allowed under Minnesota Workers’ Compensation law.

B. In the event the Company is inadvertently bound on any risk which is excluded under subparagraph 9 or subparagraphs 14 through 30 of paragraph A above, the reinsurance provided under this Contract shall apply on such risk until discovery by the Company of the existence of such risk and for 30 days thereafter, or for a period of time specific to the applicable state cancellation requirements, not to exceed 120 days.  This limitation shall not apply as respects Arizona.  Coverage shall cease after such time or at policy anniversary as respects Arizona policies, unless the Company has received from the Reinsurer written notice of its approval of such risk within 30 days.

C. Notwithstanding the foregoing, any reinsurance falling within the scope of one or more of the exclusions set forth above that is specially accepted by the Reinsurer from the Company shall be covered under this Contract and subject to all of the terms and conditions hereof, except as such terms are modified by the special acceptance.  In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder.  Further, if one or more reinsurers under this Contract agreed to special acceptance(s) under the contract replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such reinsurer(s), except for special acceptance(s) on risks that have experienced a material change in exposure (i.e., more than a 10.0% change in payroll or a new operation that would require a special acceptance on its own merits).

Article VI - Retention and Limit

A. As respects all losses subject hereto, except losses arising out of an occurrence of an act of terrorism, as respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss (whether involving any one or any combination of the classes of business covered hereunder, regardless of the number of policies under which such loss is payable or the number of different interests insured), shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one occurrence.

7

B. As respects losses arising out of an occurrence of an act of terrorism, as respects each excess layer of reinsurance coverage provided hereunder, the Company shall retain and be liable for the first amount of ultimate net loss, shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed the amount shown as “Reinsurer’s Terrorism Per Occurrence Limit” for that excess layer in Schedule A attached hereto as respects any one occurrence of an act of terrorism, nor shall it exceed the amount shown as “Reinsurer’s Contract Year Terrorism Limit” for that excess layer in Schedule A attached hereto as respects loss or losses arising out of all occurrences of acts of terrorism during any one contract year.

C. The Company deems that the maximum Employers Liability policy limits subject hereto shall not exceed $2,000,000.  Policy limits in excess of $2,000,000 may be submitted by special acceptance to the Reinsurer for coverage hereunder, subject to the provisions of paragraph C of the Exclusions Article.

Article VII - Reinstatement

A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by paragraph A of the Retention and Limit Article of this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the occurrence commences hereon.

1. As respects each amount so reinstated under the first excess layer, the Company shall pay no additional premium.

2. As respects each amount so reinstated under the second excess layer, the Company agrees to pay additional premium equal to the product of the following:

a. The percentage of the occurrence limit for the second excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

b. The earned reinsurance premium for the second excess layer for the contract year (exclusive of reinstatement premium).

B. Whenever the Company requests payment by the Reinsurer of any loss under the second excess layer that triggers additional reinstatement premium to be paid hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer.  If the earned reinsurance premium for the second excess layer for the contract year has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the annual deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the contract year has been finally determined.  Any reinstatement premium shown to be due the Reinsurer for the second excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer.  Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s statement.

8

C. Notwithstanding anything stated herein, the liability of the Reinsurer under each excess layer of reinsurance coverage provided by this Contract shall not exceed any of the following:

1. The amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one occurrence which is not an act of terrorism;

2. The amount, shown as “Reinsurer’s Terrorism Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one occurrence of an act of terrorism;

3. The amount, shown as “Reinsurer’s Contract Year Limit” for that excess layer in Schedule A attached hereto as respects loss or losses arising out of all occurrences commencing during any one contract year; or

4. The amount, shown as “Reinsurer’s Contract Year Terrorism Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of all occurrences of acts of terrorism commencing during any one contract year.

Article VIII - Definitions

A. “Ultimate net loss” as used herein is defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and any loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all recoveries from subrogation, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

B. “Loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

1. “Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

9

2. “Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

If any provision of this paragraph B shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

C. “Occurrence” as used herein is defined as an accident or occurrence or a series of accidents or occurrences arising out of or caused by one event, whether involving one or more of the Company’s policies, except that:

1. As respects Workers’ Compensation policies, each occupational or industrial disease or cumulative injury case contracted by an employee of an insured shall be deemed to have been caused by a separate occurrence commencing on:

a. The date of disability for which compensation is payable if the case is compensable under the Workers’ Compensation Law;

b. The date disability due to the disease actually began if the case is not compensable under the Workers’ Compensation Law; or

c. The date of cessation of employment if claim is made after employment has ceased.

2. Notwithstanding the provisions of subparagraph 1 above, as respects losses resulting from occupational or industrial disease and cumulative injury suffered by employees of an insured for which the employer is liable as a result of a sudden and accidental event not exceeding 72 hours in duration, all such losses shall be considered one occurrence and may be combined with losses not classified as occupational or industrial disease or cumulative injury which arise out of the same event and the combination of such losses shall be considered as one occurrence within the meaning hereof.

10

3. Notwithstanding the foregoing, the following shall apply to occurrences involving natural disasters:

a. An occurrence shall be limited to damage, injury or loss arising out of a natural disaster during any continuous 168 hour period.

b. The Company may choose the date and time when such 168 hour period commences and if the occurrence is of greater duration than 168 hours, the Company may divide such occurrence into two or more occurrences, provided no two periods overlap and provided no period commences earlier than the date and time of the first loss to the Company in such occurrence.

c. “Natural disaster” shall mean loss caused by the perils of tornado, cyclone, windstorm, hurricane and hail arising from the same atmospheric disturbance; earthquake, including ensuing fire, landslide, mudslide, flood, tidal wave; volcanic eruptions; flood; tides; tidal wave; landslide/mudslide; and meteors.

D. “Occupational or industrial disease” shall mean any abnormal condition that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has been caused by exposure to a disease producing agent or agents present in the workers’ occupational environment; and

3. It has resulted in a disability or death.

E. “Cumulative injury” is any injury that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has occurred from, and has been aggravated by, a repetitive employment-related activity; and

3. It has resulted in a disability or death.

F. “Loss adjustment expense” as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes.  Loss adjustment expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters and claim-specific declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, but shall not include office expenses or salaries of the Company’s regular employees other than medical management personnel whose cost the Company will bill to specific cases on a time and expense basis.  “Loss adjustment expense” shall not include (i) any fines or penalties assessed by or with regard to the Racketeer Influenced and Corrupt Organizations Act (RICO) or any equivalent state act or (ii) any fines or penalties assessed by any governmental entity for any type of market conduct.

11

G. “Act of terrorism” as used herein shall include all loss, cost or expense, including fire following, related directly or indirectly from either:

1. Any act of any person or persons either acting on behalf of or in connection with any organization or group with activities directed towards overthrowing, intimidating, coercing or influencing any government de jure or de facto or its populace or its economic, political or social systems, by force, violence, weapons of mass destruction, disruption or subversion of communication and information system infrastructures and/or its content thereof, or sabotage, and/or threat therefrom; or

2. An act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

Terrorism losses also include all actual or alleged losses, liabilities, damages, injuries, defense costs, and costs or expenses directly or indirectly arising out of, contributed by, caused by, resulting from, or in connection with any action taken in controlling, preventing, suppressing, retaliating against, or responding to such acts.

Notwithstanding the above, in the event of an occurrence which arises out of an act of workplace violence and is not consistent with the provisions of subparagraphs 1 and 2 of this paragraph G, such loss shall be covered hereunder, subject to the provisions of the Exclusions Article and all other provisions of this Contract and shall not be considered an act of terrorism.  Further, any occurrence which is not or cannot be determined, classified or certified in accordance with the provisions of subparagraphs 1 and 2 of this paragraph G shall be covered hereunder and not considered an act of terrorism.

H. “Declaratory judgment expenses” as used herein shall mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company’s defense and/or indemnification obligations that are assignable to specific policies and claims subject to this Contract.  Declaratory judgment expenses shall be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action.  In the event there is no loss other than declaratory judgment expenses with respect to any claim hereunder, such expenses shall be deemed loss for purposes of this Contract.

Article IX - Other Reinsurance

A. The Company shall be permitted to carry facultative reinsurance, recoveries under which shall inure to the benefit of this Contract.

B. The Company shall be permitted to carry underlying quota share reinsurance and underlying excess reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

12

Article X - Federal Terrorism Recovery

A. Any loss reimbursement the Company receives from the United States Government under the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Extension Act of 2005 and any subsequent amendments or extensions thereof (together the “Terrorism Act”) as a result of occurrences commencing during each contract year shall inure to the benefit of this Contract in the proportion that the Company’s insured losses (as defined in the Terrorism Act) in that occurrence under policies reinsured under this Contract bear to the Company’s total insured losses in that occurrence.

B. If a loss reimbursement received by the Company under the Terrorism Act is based on the Company’s insured losses in more than one occurrence and the United States Government does not designate the amount allocable to each occurrence, the reimbursement shall be prorated in the proportion that the Company’s insured losses in each occurrence bear to the Company’s total insured losses arising out of all occurrences to which the recovery applies.

Article XI - Annuities at Company’s Option

A. Whenever the Company is required, or elects, to purchase an annuity or to negotiate a structured settlement in excess of the retention of this Contract, either in satisfaction of a judgment or in an out-of-court settlement or otherwise, the cost of the annuity or the structured settlement, as the case may be, shall be deemed part of the Company’s ultimate net loss, provided such annuity or structured settlement terms grant the Company full and final release as respects the indemnity portion of the settlement.  Additionally, it is the Company’s intent to place all annuities or structured settlements with a carrier whose A.M. Best’s rating is “A” or better.

B. The terms “annuity” or “structured settlement” shall be understood to mean any insurance policy, lump sum payment, agreement or device of whatever nature resulting in the payment of a lump sum by the Company in settlement of any or all future liabilities which may attach to it as a result of an occurrence.

C. In the event the Company purchases an annuity which inures in whole or in part to the benefit of the Reinsurer, it is understood that the liability of the Reinsurer is not released thereby. In the event the Company is required to provide benefits not provided by the annuity for whatever reason, the Reinsurer shall pay its share of any loss.

Article XII - Claims

A. Whenever a claim or settlement by the Company hereunder is for an amount greater than $1,000,000 and/or whenever a claim appears likely to result in a claim under this Contract, the Company shall notify the Reinsurer.  Further, the Company shall notify the Reinsurer whenever a claim involves a fatality, amputation, spinal cord damage, brain damage, blindness or extensive burns, regardless of liability, including all subsequent developments.  The Reinsurer shall have the right to participate, at its own expense, in the defense of any claim or suit or proceeding involving this reinsurance.  The Company shall also provide any additional information that from time to time may be reasonably required by the Reinsurer to ascertain liability under this Contract.

13

B. All claim settlements made by the Company, provided such settlements are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it is liable upon receipt of reasonable evidence of the amount paid by the Company.

Article XIII - Special Commutation

A. In the event a Subscribing Reinsurer meets one or more of the following conditions, the Company may require a commutation of that portion of any excess loss hereunder represented by any outstanding claim or claims, including any related loss adjustment expense:

1. The Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (including any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (includes any “NR” rating); or

2. The Subscribing Reinsurer has ceased assuming new and renewal property and casualty treaty reinsurance business.

“Outstanding claim or claims” shall be defined as known or unknown claims, including any billed yet unpaid claims.  However, unless otherwise mutually agreed, this paragraph A shall not apply unless the outstanding claim or claims is for an amount not less than $5,000.

B. If the Company elects to require commutation as provided in paragraph A above, the Company shall submit a Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Company.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Company and the methodology employed to calculate the excess loss.  The Subscribing Reinsurer shall then pay the amount requested within 30 calendar days of receipt of such Statement of Valuation, unless the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests such amount.

C. If the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests the amount requested, the Subscribing Reinsurer shall so notify the Company within 15 calendar days of receipt of the Company’s Statement of Valuation.  The Company shall supply any reasonably requested information to the Subscribing Reinsurer within 15 calendar days of receipt of the notification.  Within 30 calendar days of the date of the notification or of the receipt of the information, whichever is later, the Subscribing Reinsurer shall provide the Company with its Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Subscribing Reinsurer.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Subscribing Reinsurer and the methodology employed to calculate the excess loss.

14

D. If agreement, as outlined in paragraphs A, B and C, cannot be reached, either party can abandon the commutation effort, or the Company and the Subscribing Reinsurer may seek to settle any difference by mutually appointing an independent actuary.

E. If the parties cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, then each party shall appoint an actuary as party arbitrators for the limited and sole purpose of selecting an independent actuary.  If the actuaries cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, the Company shall supply the Subscribing Reinsurer with a list of at least three proposed independent actuaries, and the Subscribing Reinsurer shall select the independent actuary from that list.

F. Upon selection of the independent actuary, both parties shall present their respective written submissions to the independent actuary.  The independent actuary may, at his or her discretion, request additional information.  The independent actuary shall issue his or her decision within 45 calendar days after the written submissions have been filed and any additional information has been provided.

G. The decision of the independent actuary shall be final and binding.  The expense of the independent actuary shall be equally divided between the two parties.  For the purposes of this Article, unless mutually agreed otherwise, an “independent actuary” shall be an actuary who satisfies each of the following criteria:

1. Is regularly engaged in the valuation of claims resulting from lines of business subject to this Contract; and

2. Is either a Fellow of the Casualty Actuarial Society or of the American Academy of Actuaries; and

3. Is disinterested and impartial regarding this commutation.

H. Notwithstanding paragraphs A, B and C above, in the event that the Subscribing Reinsurer no longer meets any of the conditions specified in subparagraph 1 or 2 in paragraph A above, this commutation may continue on a mutually agreed basis.

I. Payment by the Subscribing Reinsurer of the amount requested in accordance with paragraph B, C or F above, shall release the Subscribing Reinsurer from all further liability for outstanding claim or claims, known or unknown, under this Contract and shall release the Company from all further liability for payments of salvage or subrogation amounts, known or unknown, to the Subscribing Reinsurer under this Contract.

J. In the event of any conflict between this Article and any other article of this Contract, the terms of this Article shall control.

K. This Article shall survive the termination of this Contract.

15

Article XIV - Salvage and Subrogation

The Reinsurer shall be credited with recoveries from salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.  Recoveries therefrom shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Company’s opinion, it is economically reasonable to do so.

Article XV - Premium

A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer the greater of the following for each contract year (except the runoff contract year, if any):

1. The amount (or pro rata portion thereof if this Contract is terminated prior to the end of any 12-month contract year in accordance with the provisions of the Special Termination Article), shown as “Annual Minimum Premium” for that excess layer in Schedule A attached hereto; or

2. The percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium for the contract year.

B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as “Annual Deposit Premium” for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” for that excess layer in Schedule A attached hereto, on January 1, April 1, July 1 and October 1 of each contract year (except the runoff contract year, if any).  However, no deposit premium installments shall be due after the effective date of termination.

C. Within 60 days following the end of each contract year (except the runoff contract year, if any), the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the contract year, computed in accordance with paragraph A, and any additional premium due the Reinsurer for each such excess layer shall be remitted by the Company with its report.  If the premium so computed for any excess layer is less than the previously paid, but more than the minimum premium, for that excess layer, the balance shall be returned by the Reinsurer to the Company within 30 days of the report.

D. In the event this Contract is terminated on a “runoff” basis, the Company shall pay the Reinsurer premium for each excess layer for the runoff contract year equal to the percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium applicable to subject business for that excess layer during the runoff contract year.  Within 30 days following the end of each three-month period during the runoff contract year, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the applicable three-month period, computed in accordance with this paragraph, and such premium shall be remitted by the Company with its report.

16

E. “Net earned premium” as used herein is defined as the Company’s gross earned premium for the classes of business subject to this Contract (exclusive of premium for business covered by the Minnesota Workers’ Compensation Reinsurance Association), adjusted for experience modification, discounts, credits, surcharges, expense constants and deductible credits, plus or minus the Reinsurer’s pro rata share of any premium arising from audit adjustments, minus premiums paid for facultative reinsurance which inures to the benefit of this Contract.

Article XVI - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (BRMA 23A) (hereinafter referred to as the “Intermediary”) by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 30 days after the proof of loss and demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 30 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss and demand for payment was transmitted to the Reinsurer.

17

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 above, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

E. Interest penalties arising out of the application of this Article that are $50,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article XVII - Offset

Each party hereto has the right, which may be exercised at any time, to offset any amounts, whether on account of premiums or losses or otherwise, due from such party to another party under this Contract or any other reinsurance contract heretofore or hereafter entered into between them, against any amounts, whether on account of premiums or losses or otherwise due from the latter party to the former party.  The party asserting the right of offset may exercise this right, whether as assuming or ceding insurer or in both roles in the relevant agreement or agreements.

Article XVIII - Access to Records (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance.

Article XIX - Liability of the Reinsurer

A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company’s policies and any endorsements thereon.  However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

18

B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

Article XX - Net Retained Lines (BRMA 32E)

A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

B. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article XXI - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article XXII - Currency (BRMA 12A)

A. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article XXIII - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

19

Article XXIV - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article XXV - Reserves

(Applies only to a reinsurer which (1) does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Company’s reserves, or (2) which is or becomes rated “B++” or lower or holds a “Not Rated” rating by A.M. Best or is or becomes rated “BBB+” or lower or holds an “NR” rating by Standard & Poor’s, unless the reinsurer has an A.M. Best’s rating of “A” or better or Standard & Poor’s rating of “A” or better and group policyholders’ surplus equal to or above $2,000,000,000 at the inception of this Contract)

A. As regards policies or bonds issued by the Company coming within the scope of this Contract, the Company agrees that when it shall file with the insurance regulatory authority or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer.  The Reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the Reinsurer and allocated loss adjustment expense relating thereto, losses and loss adjustment expense paid by the Company but not recovered from the Reinsurer, plus reserves for losses and loss adjustment expense incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by Regulation 114 trust accounts, funds withheld, cash advances or a Letter of Credit, or combination thereof.  For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund and the Hannover Re U.S. Master Trust shall be considered acceptable funding instruments.  The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.

B. When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves.  Such Letter of Credit shall be issued for a period of not less than one year, and shall contain an “evergreen” clause, which automatically extends the term for one year from its date of expiration or any future expiration date unless 30 days (60 days where required by insurance regulatory authorities) prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

20

C. The Reinsurer and Company agree that the Letters of Credit provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company for the following purposes, unless otherwise provided for in a separate Trust Agreement:

1. To reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;

2. To make refund of any sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract, if so requested by the Reinsurer;

3. To fund an account with the Company for the Reinsurer’s Obligations.  Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer;

4. To pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual amount required for subparagraphs 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.  All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

D. The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

E. At quarterly intervals and on an estimated basis 45 days prior to each December 31, or more frequently as agreed but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1. If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such excess, secure delivery to the Company of an amendment to the Letter of Credit increasing the amount of credit by the amount of such difference.

2. If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of credit as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of credit available by the amount of such excess credit.

21

Article XXVI - Insolvency

A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees.

Article XXVII - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the Umpire shall be appointed in accordance with the procedures of the American Arbitration Association.

22

B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

Article XXVIII - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

23

Article XXIX - Agency Agreement (BRMA 73A)

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies (subject to the provisions of the Insolvency Article) for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

Article XXX - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

Article XXXI - Intermediary (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Benfield Inc.  Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at:

North Palm Beach, Florida, this ________ day of ___________________ in the year ________.

__________________________________________________________

AmCOMP Preferred Insurance Company

AmCOMP Assurance Corporation

any and all insurance companies which are now or hereafter come under

the same ownership or management as the AmCOMP Group

24

Schedule A

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

	First Excess			Second Excess
Company’s Retention	$	2,000,000		$	5,000,000
Reinsurer’s Per Occurrence Limit	$	3,000,000		$	5,000,000
Reinsurer’s Terrorism Per Occurrence Limit	$	3,000,000		$	5,000,000
Reinsurer’s Contract Year Limit	$	21,000,000		$	10,000,000
Reinsurer’s Contract Year Terrorism Limit	$	3,000,000		$	5,000,000
Annual Minimum Premium	$	4,092,000		$	1,000,000
Premium Rate		2.2000	%		0.5376	%
Annual Deposit Premium	$	5,115,000		$	1,250,000
Quarterly Deposit Premium	$	1,278,750		$	312,500

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

Schedule A

Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)

(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operation of paragraph (1) of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II of this paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

I. It is agreed that the policy does not apply under any liability coverage, to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II. Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III. The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

(a) become effective on or after 1st May, 1960, or

(b) become effective before that date and contain the Limited Exclusion Provision set out above;

provided this paragraph (2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(3) Except for those classes of policies specified in Clause II of paragraph (2) and without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

I. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

(a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

(b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

Page 1 of 2

II. Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to

(immediate medical or surgical relief

(first aid,

to expenses incurred with respect to

(bodily injury, sickness, disease or death

(bodily injury

resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

III. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

resulting from the hazardous properties of nuclear material, if

(a)	the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;
(b)	the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

(c) the

(injury, sickness, disease, death or destruction

(bodily injury or property damage

arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to

(injury to or destruction of property at such nuclear facility

(property damage to such nuclear facility and any property thereat.

IV. As used in this endorsement:

“hazardous properties” include radioactive, toxic or explosive properties; “nuclear material” means source material, special nuclear material or byproduct material; “source material”, “special nuclear material”, and “byproduct material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; “waste” means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear facility” means

(a)	any nuclear reactor,
(b)	any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling processing or packaging waste,

(c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

(d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or “destruction,”

(“property damage” includes all forms of radioactive contamination of property,

(includes all forms of radioactive contamination of property.

V. The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

(i) Garage and Automobile Policies issued by the Reassured on New York risks, or

(ii) statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(4) Without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that paragraphs (2) and (3) above are not applicable to original liability policies of the Reassured in Canada and that with respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent Insurance Conference of Canada.

*NOTE. The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

Page 2 of 2

Nuclear Incident Exclusion Clause Reinsurance - No. 4

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operations of Nuclear Incident Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 - Boiler and Machinery and paragraph (1) of this clause, it is understood and agreed that for all purposes as respects the reinsurance assumed by the Reinsurer from the Reassured, all original insurance policies or contracts of the Reassured (new, renewal and replacement) shall be deemed to include the applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any subsequent revisions thereto as agreed upon and approved by the Insurance Industry and/or a qualified Advisory or Rating Bureau.

Pollution Exclusion Clause - General Liability - Reinsurance

A. This reinsurance excludes all loss and/or liability accruing to the reinsured company as a result of:

1. bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

a. at or from premises owned, rented or occupied by a named insured;

b. at or from any site or location used by or for a named insured or others for the handling, storage, disposal, processing or treatment of waste;

c. which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for a named insured or any person or organization for whom a named insured may be legally responsible; or

d. at or from any site or location on which a named insured or any contractors or subcontractors working directly or indirectly on behalf of a named insured are performing operations:

(i) if the pollutants are brought on or to the site or location in connection with such operations; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants;

2. any governmental direction or request that a named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.

B. Subparagraphs A(1)(a) and A(1)(d)(i) above do not apply to bodily injury or property damage caused by heat, smoke or fumes from a hostile fire.

C. “Hostile fire” means a fire which becomes uncontrollable or breaks out from where it was intended to be.

D. “Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.  Waste includes material to be recycled, reconditioned or reclaimed.

War Risk Exclusion Clause (Reinsurance)

As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority.

Nevertheless, this clause shall not be construed to apply to loss or damage occasioned by riots, strikes, civil commotion, vandalism or malicious damage.

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

First Excess Workers’ Compensation Reinsurance

Reinsurers	Participations
Everest Reinsurance Company		25.0%
Max Bermuda Ltd.		22.5
Safety National Casualty Corporation		7.5
Through Benfield Limited (Placement Only)
PARIS RE		20.0
Total		75.0% part of 100% share in the interests and liabilities of the “Reinsurer”

Second Excess Workers’ Compensation Reinsurance

Reinsurers	Participations
Hannover Rueckversicherungs-Aktiengesellschaft		35.0%
Max Bermuda Ltd.		10.0
Through Benfield Limited (Placement Only)
PARIS RE		21.5
Through Benfield Limited
Lloyd’s Underwriters and Companies
Per Signing Page(s)		33.5
Total		100.0%

Interests and Liabilities Agreement

of

Everest Reinsurance Company

A Delaware Corporation

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           25.0%of the First Excess Workers’ Compensation Reinsurance

                                0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Liberty Corner, New Jersey, this _______ day of ___________________ in the year ________.

__________________________________________________________

Everest Reinsurance Company

Interests and Liabilities Agreement

of

Hannover Ruckversicherungs-Aktiengesellschaft

Hannover, Germany

 (hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                                0%of the First Excess Workers’ Compensation Reinsurance

                           35.0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Hannover, Germany, this _______ day of _________________________ in the year ________.

__________________________________________________________

Hannover Ruckversicherungs-Aktiengesellschaft

Interests and Liabilities Agreement

of

Max Bermuda Ltd.

Hamilton, Bermuda

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           22.5%of the First Excess Workers’ Compensation Reinsurance

                           10.0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Hamilton, Bermuda, this _______ day of __________________________ in the year ________.

__________________________________________________________

Max Bermuda Ltd.

Interests and Liabilities Agreement

of

Safety National Casualty Corporation

St. Louis, Missouri

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           7.5%of the First Excess Workers’ Compensation Reinsurance

                              0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

St. Louis, Missouri, this _______ day of __________________________ in the year ________.

__________________________________________________________

Safety National Casualty Corporation

Interests and Liabilities Agreement

of

PARIS RE

Paris, France

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           20.0%of the First Excess Workers’ Compensation Reinsurance

                           21.5%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Paris, France, this _______ day of ______________________________ in the year ________.

__________________________________________________________

PARIS RE

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd’s

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                               0%of the First Excess Workers’ Compensation Reinsurance

                           20.0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Signing Page

attaching to and forming part of the

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd’s

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company, et al.

(Re)Insurer’s Liability Clause - LMA3333

(Re)insurer’s liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract.  A (re)insurer is liable only for the proportion of liability it has underwritten.  A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer.  Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp.  This is subject always to the provision concerning “signing” below.

In the case of a Lloyd’s syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer.  Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together).  The liability of each member of the syndicate is several and not joint with other members.  A member is liable only for that member’s proportion.  A member is not jointly liable for any other member’s proportion.  Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.  The business address of each member is Lloyd’s, One Lime Street, London EC3M 7HA.  The identity of each member of a Lloyd’s syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd’s, at the above address.

Proportion of liability

Unless there is “signing” (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its “written line”.

Where this contract permits, written lines, or certain written lines, may be adjusted (“signed”).  In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together).  A definitive proportion (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of a Lloyd’s syndicate taken together) is referred to as a “signed line”.  The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to “this contract” in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.

Interests and Liabilities Agreement

of

Certain Insurance Companies

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                               0%of the First Excess Workers’ Compensation Reinsurance

                           13.5%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Signing Page

attaching to and forming part of the

Interests and Liabilities Agreement

of

Certain Insurance Companies

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company, et al.

(Re)Insurer’s Liability Clause - LMA3333

(Re)insurer’s liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract.  A (re)insurer is liable only for the proportion of liability it has underwritten.  A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer.  Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp.  This is subject always to the provision concerning “signing” below.

In the case of a Lloyd’s syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer.  Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together).  The liability of each member of the syndicate is several and not joint with other members.  A member is liable only for that member’s proportion.  A member is not jointly liable for any other member’s proportion.  Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.  The business address of each member is Lloyd’s, One Lime Street, London EC3M 7HA.  The identity of each member of a Lloyd’s syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd’s, at the above address.

Proportion of liability

Unless there is “signing” (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its “written line”.

Where this contract permits, written lines, or certain written lines, may be adjusted (“signed”).  In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together).  A definitive proportion (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of a Lloyd’s syndicate taken together) is referred to as a “signed line”.  The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to “this contract” in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.

EX-10.54

Exhibit 10.54

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

Table of Contents

Article		Page
I	Classes of Business Reinsured	1
II	Commencement and Termination	1
III	Special Termination	2
IV	Territory (BRMA 51A)	3
V	Exclusions	3
VI	Retention and Limit	7
VII	Reinstatement	8
VIII	Definitions	9
IX	Other Reinsurance	12
X	Federal Terrorism Recovery	12
XI	Annuities at Company’s Option	13
XII	Claims	13
XIII	Sunset	14
XIV	Special Commutation	14
XV	Salvage and Subrogation	16
XVI	Premium	17
XVII	Late Payments	18
XVIII	Offset	19
XIX	Access to Records (BRMA 1D)	19
XX	Liability of the Reinsurer	19
XXI	Net Retained Lines (BRMA 32E)	19
XXII	Errors and Omissions (BRMA 14F)	20
XXIII	Currency (BRMA 12A)	20
XXIV	Taxes (BRMA 50B)	20
XXV	Federal Excise Tax (BRMA 17D)	20
XXVI	Reserves	21
XXVII	Insolvency	22
XXVIII	Arbitration	23
XXIX	Service of Suit (BRMA 49C)	24
XXX	Agency Agreement (BRMA 73A)	24
XXXI	Governing Law (BRMA 71B)	24
XXXII	Intermediary (BRMA 23A)	25
	Schedule A

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

(hereinafter referred to collectively as the “Company”)

by

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)

Article I - Classes of Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called “policies”) in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Workers’ Compensation and Employers Liability business, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

Article II - Commencement and Termination

A. This Contract shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, with respect to losses arising out of occurrences commencing at or after that time and date, and shall continue in force thereafter until terminated.

B. Either party may terminate this Contract at 12:01 a.m., Local Standard Time where the occurrence commences, on any January 1 by giving the other party not less than 90 days prior notice by certified mail.

C. Unless the Company elects that the Reinsurer have no liability for losses arising out of occurrences commencing at or after the effective time and date of termination, and so notifies the Reinsurer prior to or as promptly as possible after the effective date of termination, reinsurance hereunder on business in force at the effective time and date of termination shall remain in full force and effect until expiration, cancellation or next premium anniversary of such business, whichever first occurs, but in no event beyond 12 months, plus odd time (not to exceed 18 months in all), following the effective time and date of termination.

D. Notwithstanding the provisions above, in the event that any policy subject to this Contract is required by statute, regulation or by order of an insurance department to be continued in force, the Reinsurer agrees to extend reinsurance coverage hereunder following the termination of this Contract with respect to such policy until the first date that the Company may lawfully non-renew, cancel or terminate such policy, whether or not the Company actually does non-renew, cancel or terminate such policy.  However, under no circumstances shall runoff coverage under this paragraph exceed 23 months.

E. “Contract year” as used herein shall mean the period from 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, to 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, and each subsequent 12-month period (or portion thereof) thereafter that this Contract continues in force shall be a separate contract year.  If this Contract is terminated on a “runoff” basis, the period from the effective date of termination through the end of the “runoff” period shall be a separate contract year and referred to as the “runoff contract year.”

Article III - Special Termination

A. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, either party may terminate this Contract at any time by giving the other party not less than 30 days prior written notice in the event any of the following circumstances occur (if terminated by either party, said termination shall be on a “runoff” basis unless the Company elects to have such termination on a “cutoff” basis):

1. The other party’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at the beginning of any contract year has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

2. The other party’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time during the contract year has been reduced by more than 30.0% of the amount of surplus (or the applicable equivalent) at the date of the other party’s most recent financial statement filed with regulatory authorities and available to the public as of the beginning of the contract year; or

3. The other party has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the other party’s operations previously; however, this subparagraph shall not apply to the sale of stock to a non-acquiring entity or where the acquiring company, corporation or individual(s) has an A.M. Best’s rating higher than the rating held by the other party at the beginning of the contract year; or

2

4. The State Insurance Department or other legal authority in the other party’s state of domicile has ordered the other party to cease writing business; or

5. The other party has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary) or proceedings have been instituted against the other party for the appointment of a receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

6. The other party has ceased writing new and renewal property and casualty business.

B. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, the Company may terminate a Subscribing Reinsurer’s percentage share in this Contract by giving not less than 30 days prior written notice to the Subscribing Reinsurer in the event the Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (includes any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (includes any “NR” rating).

C. Notwithstanding the provisions of paragraph B of the Commencement and Termination Article, a Subscribing Reinsurer may terminate its percentage share in this Contract by giving the Company not less than 30 days prior written notice in the event any of the following circumstances occur (said termination shall be on a “runoff” basis unless the Company elects to have such termination on a “cutoff” basis; however, termination shall be on a “cutoff” basis if the Subscribing Reinsurer terminates because the Company has failed to pay premium):

1. 51.0% or more of the Company or its portfolio is purchased or sold; or

2. The Company has failed to pay reinsurance premiums in accordance with this Contract; or

3. A material change has occurred in any two of the Company’s three senior officers (i.e., the Chief Executive Officer, the President, or the Chief Financial Officer).

Article IV - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

Article V - Exclusions

A. This Contract does not apply to and specifically excludes the following:

1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except:

a. Agency reinsurance where the policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company policies at the next anniversary or expiration date;

3

b. Intercompany reinsurance between any of the reinsured companies under this Contract.

2. Ex-gratia payments.

3. Risks subject to a deductible in excess of $25,000, or a self-insured retention excess of $25,000, unless such deductible or self-insured retention is otherwise mandated by statute or regulatory authority.

4. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and loss or liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance - No. 4” attached to and forming part of this Contract.

5. Pollution liability coverages excluded under the provisions of the “Pollution Exclusion Clause - General Liability - Reinsurance (BRMA 39C)” attached to and forming part of this Contract.

6. Liability as a member, subscriber or reinsurer of any Pool, Syndicate or Association, but this exclusion shall not apply to Assigned Risk Plans or similar state-mandated plans.

7. All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

8. Loss or liability as excluded in the “War Risk Exclusion Clause (Reinsurance)” attached to and forming part of this Contract.  However, this exclusion shall not apply to an act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

9. Operation under the jurisdiction of the United States Longshore and Harbor Workers’ Compensation Act or the Jones Act, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

10. Operations employing the process of nuclear fission or fusion or handling of radioactive material, which operations include but are not limited to:

a. The use of nuclear reactors such as atomic piles, particle accelerators or generators; or

b. The use, handling or transportation of radioactive materials, or the use, handling or transportation of any weapon of war or explosive device employing nuclear fission or fusion.

4

However, subparagraphs a and b above shall not apply to:

i. The exclusive use of particle accelerators incidental to ordinary industrial or education research pursuits, or

ii. The exclusive use, handling or transportation of radioisotopes for medical or industrial use, or to radium or radium compounds.

11. Operation of docks or wharves as related to port authorities.

12. The manufacturing, mining, refining, processing, distribution, installation, removal or encapsulment of asbestos.

13. Risks involving known exposure to the following substances:

a. Dioxin;

b. Polychlorinated biphenols;

c. Asbestos.

14. All railway operations except sidetrack agreements.

15. Amusement parks, carnivals or circuses.  This exclusion shall not apply to miniature golf courses or driving range operations.

16. Subaquaeous operations.

17. Underground mining; however, this exclusion shall not be construed to apply to open-pit quarrying or “surface mining” operations.

18. Blasting operations, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

19. Demolition of buildings or structures in excess of five stories.

20. Shoring and moving of buildings or structures, or underpinning that involves pier and beam construction, commercial buildings with more than three stories or hillside building reinforcements.  However, this exclusion shall not apply to foundation repair risks for which neither the insured nor its employees are in tunnels or are otherwise working under buildings.

21. Erection or repair of scaffolds if 10.0% or more of the insured’s annual remuneration is attributed to NCCI Class Code 9534 or 9529.

22. Construction of tunnels or dams.

5

23. Fireworks, fuses, or any explosive substance (as defined below) as follows:

a. Manufacturers or importers of such items;

b. Loading of such items into containers for use as explosive objects, propellant charges or detonation devices and the storage thereof (except as previously provided for, on an incidental basis, in exclusion 18);

c. Manufacturers or importers of any product in which such items are an ingredient;

d. Handling, storage, transportation or use of such items (except as previously provided for, on an incidental basis, in exclusion 18).

“Explosive substance” is defined as any substance manufactured for the express purpose of exploding as differentiated from commodities used industrially and which are only incidentally explosive.

24. Onshore and offshore gas and oil drilling operations.

25. Operations where principal business includes the use of any owned or unowned aircraft, or any device or machine intended for and/or aiding in the achievement of atmospheric flight, projection or orbit, and/or the ownership or operation of any airport.  This exclusion shall not apply where exposure is incidental (i.e., constitutes 10.0% or less of the insured’s payroll) to the principal business operations and the aircraft contains eight seats or fewer.

26. Municipal law enforcement organizations and municipal fire fighting organizations, whether professional or voluntary.  This exclusion shall not apply to off-duty law enforcement officers when employed by an entity other than a municipality for duties performed within the scope of the job for which they were hired.

27. Logging or forestry operations.

28. Professional employment organizations (PEOs).

29. Professional sports teams.

30. Operations where the principal business of the risk is manufacturing, production, distribution, refining or storage of natural or artificial fuel, gas, butane, propane, liquefied petroleum gases or gasoline.  This exclusion shall not apply to any risk whose principal business operations are any of the following:

a. Retail gasoline service station, either full or self service, or retail gasoline marina;

b. Convenience store with gasoline sales with its petroleum gas and/or storage tanks located below ground.

31. Acts of terrorism, as defined in paragraph G of the Definitions Article, that:

a. Involve the use, release or escape of nuclear materials; or

6

b. Directly or indirectly result in nuclear reaction or radiation or radioactive contamination; or

c. Are carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials where it appears that one purpose of the act of terrorism was to release such materials.

32. Business reinsured by the Minnesota Workers’ Compensation Reinsurance Association, whether contractually assumed or imposed by law, including, but not limited to, direct or indirect loss, damage, liability, cost or expense.  However, this exclusion shall not apply to:

a. Losses paid within the Company’s net retention; or

b. Losses paid in excess of the benefits allowed under Minnesota Workers’ Compensation law.

B. In the event the Company is inadvertently bound on any risk which is excluded under subparagraph 9 or subparagraphs 14 through 30 of paragraph A above, the reinsurance provided under this Contract shall apply on such risk until discovery by the Company of the existence of such risk and for 30 days thereafter, or for a period of time specific to the applicable state cancellation requirements, not to exceed 120 days.  This limitation shall not apply as respects Arizona.  Coverage shall cease after such time or at policy anniversary as respects Arizona policies, unless the Company has received from the Reinsurer written notice of its approval of such risk within 30 days.

C. Notwithstanding the foregoing, any reinsurance falling within the scope of one or more of the exclusions set forth above that is specially accepted by the Reinsurer from the Company shall be covered under this Contract and subject to all of the terms and conditions hereof, except as such terms are modified by the special acceptance.  In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder.  Further, if one or more reinsurers under this Contract agreed to special acceptance(s) under the contract replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such reinsurer(s), except for special acceptance(s) on risks that have experienced a material change in exposure (i.e., more than a 10.0% change in payroll or a new operation that would require a special acceptance on its own merits).

Article VI - Retention and Limit

A. As respects all losses subject hereto, except losses arising out of an occurrence of an act of terrorism, as respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss (whether involving any one or any combination of the classes of business covered hereunder, regardless of the number of policies under which such loss is payable or the number of different interests insured), shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one occurrence.

7

B. As respects losses arising out of an occurrence of an act of terrorism, as respects each excess layer of reinsurance coverage provided hereunder, the Company shall retain and be liable for the first amount of ultimate net loss, shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed the amount shown as “Reinsurer’s Terrorism Per Occurrence Limit” for that excess layer in Schedule A attached hereto as respects any one occurrence of an act of terrorism, nor shall it exceed the amount shown as “Reinsurer’s Contract Year Terrorism Limit” for that excess layer in Schedule A attached hereto as respects loss or losses arising out of all occurrences of acts of terrorism during any one contract year.

C. The Company deems that the maximum Employers Liability policy limits subject hereto shall not exceed $2,000,000.  Policy limits in excess of $2,000,000 may be submitted by special acceptance to the Reinsurer for coverage hereunder, subject to the provisions of paragraph C of the Exclusions Article.

Article VII - Reinstatement

A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by paragraph A of the Retention and Limit Article of this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the occurrence commences hereon.

1. As respects each amount so reinstated under the first excess layer, the Company shall pay no additional premium.

2. As respects each amount so reinstated under the second excess layer, the Company agrees to pay additional premium equal to the product of the following:

a. The percentage of the occurrence limit for the second excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

b. The earned reinsurance premium for the second excess layer for the contract year (exclusive of reinstatement premium).

B. Whenever the Company requests payment by the Reinsurer of any loss under the second excess layer that triggers additional reinstatement premium to be paid hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer.  If the earned reinsurance premium for the second excess layer for the contract year has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the annual deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the contract year has been finally determined.  Any reinstatement premium shown to be due the Reinsurer for the second excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer.  Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s statement.

8

C. Notwithstanding anything stated herein, the liability of the Reinsurer under each excess layer of reinsurance coverage provided by this Contract shall not exceed any of the following:

1. The amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one occurrence which is not an act of terrorism;

2. The amount, shown as “Reinsurer’s Terrorism Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one occurrence of an act of terrorism;

3. The amount, shown as “Reinsurer’s Contract Year Limit” for that excess layer in Schedule A attached hereto as respects loss or losses arising out of all occurrences commencing during any one contract year; or

4. The amount, shown as “Reinsurer’s Contract Year Terrorism Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of all occurrences of acts of terrorism commencing during any one contract year.

Article VIII - Definitions

A. “Ultimate net loss” as used herein is defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and any loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all recoveries from subrogation, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

B. “Loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

1. “Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

9

2. “Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

If any provision of this paragraph B shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

C. “Occurrence” as used herein is defined as an accident or occurrence or a series of accidents or occurrences arising out of or caused by one event, whether involving one or more of the Company’s policies, except that:

1. As respects Workers’ Compensation policies, each occupational or industrial disease or cumulative injury case contracted by an employee of an insured shall be deemed to have been caused by a separate occurrence commencing on:

a. The date of disability for which compensation is payable if the case is compensable under the Workers’ Compensation Law;

b. The date disability due to the disease actually began if the case is not compensable under the Workers’ Compensation Law; or

c. The date of cessation of employment if claim is made after employment has ceased.

2. Notwithstanding the provisions of subparagraph 1 above, as respects losses resulting from occupational or industrial disease and cumulative injury suffered by employees of an insured for which the employer is liable as a result of a sudden and accidental event not exceeding 72 hours in duration, all such losses shall be considered one occurrence and may be combined with losses not classified as occupational or industrial disease or cumulative injury which arise out of the same event and the combination of such losses shall be considered as one occurrence within the meaning hereof.

10

3. Notwithstanding the foregoing, the following shall apply to occurrences involving natural disasters:

a. An occurrence shall be limited to damage, injury or loss arising out of a natural disaster during any continuous 168 hour period.

b. The Company may choose the date and time when such 168 hour period commences and if the occurrence is of greater duration than 168 hours, the Company may divide such occurrence into two or more occurrences, provided no two periods overlap and provided no period commences earlier than the date and time of the first loss to the Company in such occurrence.

c. “Natural disaster” shall mean loss caused by the perils of tornado, cyclone, windstorm, hurricane and hail arising from the same atmospheric disturbance; earthquake, including ensuing fire, landslide, mudslide, flood, tidal wave; volcanic eruptions; flood; tides; tidal wave; landslide/mudslide; and meteors.

D. “Occupational or industrial disease” shall mean any abnormal condition that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has been caused by exposure to a disease producing agent or agents present in the workers’ occupational environment; and

3. It has resulted in a disability or death.

E. “Cumulative injury” is any injury that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has occurred from, and has been aggravated by, a repetitive employment-related activity; and

3. It has resulted in a disability or death.

F. “Loss adjustment expense” as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes.  Loss adjustment expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters and claim-specific declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, but shall not include office expenses or salaries of the Company’s regular employees other than medical management personnel whose cost the Company will bill to specific cases on a time and expense basis.

11

G. “Act of terrorism” as used herein shall include all loss, cost or expense, including fire following, related directly or indirectly from either:

1. Any act of any person or persons either acting on behalf of or in connection with any organization or group with activities directed towards overthrowing, intimidating, coercing or influencing any government de jure or de facto or its populace or its economic, political or social systems, by force, violence, weapons of mass destruction, disruption or subversion of communication and information system infrastructures and/or its content thereof, or sabotage, and/or threat therefrom; or

2. An act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

Terrorism losses also include all actual or alleged losses, liabilities, damages, injuries, defense costs, and costs or expenses directly or indirectly arising out of, contributed by, caused by, resulting from, or in connection with any action taken in controlling, preventing, suppressing, retaliating against, or responding to such acts.

Notwithstanding the above, in the event of an occurrence which arises out of an act of workplace violence and is not consistent with the provisions of subparagraphs 1 and 2 of this paragraph G, such loss shall be covered hereunder, subject to the provisions of the Exclusions Article and all other provisions of this Contract and shall not be considered an act of terrorism.  Further, any occurrence which is not or cannot be determined, classified or certified in accordance with the provisions of subparagraphs 1 and 2 of this paragraph G shall be covered hereunder and not considered an act of terrorism.

H. “Declaratory judgment expenses” as used herein shall mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company’s defense and/or indemnification obligations that are assignable to specific policies and claims subject to this Contract.  Declaratory judgment expenses shall be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action.  In the event there is no loss other than declaratory judgment expenses with respect to any claim hereunder, such expenses shall be deemed loss for purposes of this Contract.

Article IX - Other Reinsurance

A. The Company shall be permitted to carry facultative reinsurance, recoveries under which shall inure to the benefit of this Contract.

B. The Company shall be permitted to carry underlying quota share reinsurance and underlying excess reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article X - Federal Terrorism Recovery

A. Any loss reimbursement the Company receives from the United States Government under the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Extension Act of 2005 and any subsequent amendments or extensions thereof (together the “Terrorism Act”) as a result of occurrences commencing during each contract year shall inure to the benefit of this Contract in the proportion that the Company’s insured losses (as defined in the Terrorism Act) in that occurrence under policies reinsured under this Contract bear to the Company’s total insured losses in that occurrence.

12

B. If a loss reimbursement received by the Company under the Terrorism Act is based on the Company’s insured losses in more than one occurrence and the United States Government does not designate the amount allocable to each occurrence, the reimbursement shall be prorated in the proportion that the Company’s insured losses in each occurrence bear to the Company’s total insured losses arising out of all occurrences to which the recovery applies.

Article XI - Annuities at Company’s Option

A. Whenever the Company is required, or elects, to purchase an annuity or to negotiate a structured settlement in excess of the retention of this Contract, either in satisfaction of a judgment or in an out-of-court settlement or otherwise, the cost of the annuity or the structured settlement, as the case may be, shall be deemed part of the Company’s ultimate net loss, provided such annuity or structured settlement terms grant the Company full and final release as respects the indemnity portion of the settlement.  Additionally, it is the Company’s intent to place all annuities or structured settlements with a carrier whose A.M. Best’s rating is “A” or better.

B. The terms “annuity” or “structured settlement” shall be understood to mean any insurance policy, lump sum payment, agreement or device of whatever nature resulting in the payment of a lump sum by the Company in settlement of any or all future liabilities which may attach to it as a result of an occurrence.

C. In the event the Company purchases an annuity which inures in whole or in part to the benefit of the Reinsurer, it is understood that the liability of the Reinsurer is not released thereby. In the event the Company is required to provide benefits not provided by the annuity for whatever reason, the Reinsurer shall pay its share of any loss.

Article XII - Claims

A. Whenever a claim or settlement by the Company hereunder is for an amount greater than $500,000 and/or whenever a claim appears likely to result in a claim under this Contract, the Company shall notify the Reinsurer.  Further, the Company shall notify the Reinsurer whenever a claim involves a fatality, amputation, spinal cord damage, brain damage, blindness or extensive burns, regardless of liability, including all subsequent developments.  The Reinsurer shall have the right to participate, at its own expense, in the defense of any claim or suit or proceeding involving this reinsurance.  The Company shall also provide any additional information that from time to time may be reasonably required by the Reinsurer to ascertain liability under this Contract.

B. All claim settlements made by the Company, provided such settlements are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it is liable upon receipt of reasonable evidence of the amount paid by the Company.

13

Article XIII - Sunset

A. Notwithstanding anything herein to the contrary, coverage shall apply only to claims otherwise covered hereunder which also satisfy the following criteria within seven years of the termination date of this Contract:

1. The Company has received formal notification from its insured which satisfies the reporting provisions under the Company’s policy; and

2. The Company has made entry into its claim records of such claim as stipulated hereunder; and

3. The Company has paid and/or reserved such claim to 25.0% or more of the applicable retention hereunder.

B. The required entry into the Company’s claim records and the Company’s notice to the Reinsurer as required herein shall each include, but shall not be limited to:

1. The location of the loss;

2. The date of loss, as established under this Contract;

3. The names of all insureds who have been identified as being involved in the loss;

4. The facts describing how the loss occurred;

5. A description of the damages being claimed against the insured;

6. The names of all known claimants;

7. A schedule of all of the Company’s policies applicable to this loss, including policy numbers, policy limits, policy periods, and lines of business;

8. Reserves and payments for indemnity, medical and expense, if any.

Article XIV - Special Commutation

A. In the event a Subscribing Reinsurer meets one or more of the following conditions, the Company may require a commutation of that portion of any excess loss hereunder represented by any outstanding claim or claims, including any related loss adjustment expense:

1. The Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (including any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (includes any “NR” rating); or

14

2. The Subscribing Reinsurer has ceased assuming new and renewal property and casualty treaty reinsurance business.

“Outstanding claim or claims” shall be defined as known or unknown claims, including any billed yet unpaid claims.  However, unless otherwise mutually agreed, this paragraph A shall not apply unless the outstanding claim or claims is for an amount not less than $5,000.

B. If the Company elects to require commutation as provided in paragraph A above, the Company shall submit a Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Company.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Company and the methodology employed to calculate the excess loss.  The Subscribing Reinsurer shall then pay the amount requested within 30 calendar days of receipt of such Statement of Valuation, unless the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests such amount.

C. If the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests the amount requested, the Subscribing Reinsurer shall so notify the Company within 15 calendar days of receipt of the Company’s Statement of Valuation.  The Company shall supply any reasonably requested information to the Subscribing Reinsurer within 15 calendar days of receipt of the notification.  Within 30 calendar days of the date of the notification or of the receipt of the information, whichever is later, the Subscribing Reinsurer shall provide the Company with its Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Subscribing Reinsurer.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Subscribing Reinsurer and the methodology employed to calculate the excess loss.

D. If agreement, as outlined in paragraphs A, B and C, cannot be reached, either party can abandon the commutation effort, or the Company and the Subscribing Reinsurer may seek to settle any difference by mutually appointing an independent actuary.

E. If the parties cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, then each party shall appoint an actuary as party arbitrators for the limited and sole purpose of selecting an independent actuary.  If the actuaries cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, the Company shall supply the Subscribing Reinsurer with a list of at least three proposed independent actuaries, and the Subscribing Reinsurer shall select the independent actuary from that list.

F. Upon selection of the independent actuary, both parties shall present their respective written submissions to the independent actuary.  The independent actuary may, at his or her discretion, request additional information.  The independent actuary shall issue his or her decision within 45 calendar days after the written submissions have been filed and any additional information has been provided.

15

G. The decision of the independent actuary shall be final and binding.  The expense of the independent actuary shall be equally divided between the two parties.  For the purposes of this Article, unless mutually agreed otherwise, an “independent actuary” shall be an actuary who satisfies each of the following criteria:

1. Is regularly engaged in the valuation of claims resulting from lines of business subject to this Contract; and

2. Is either a Fellow of the Casualty Actuarial Society or of the American Academy of Actuaries; and

3. Is disinterested and impartial regarding this commutation.

H. Notwithstanding paragraphs A, B and C above, in the event that the Subscribing Reinsurer no longer meets any of the conditions specified in subparagraph 1 or 2 in paragraph A above, this commutation may continue on a mutually agreed basis.

I. Payment by the Subscribing Reinsurer of the amount requested in accordance with paragraph B, C or F above, shall release the Subscribing Reinsurer from all further liability for outstanding claim or claims, known or unknown, under this Contract and shall release the Company from all further liability for payments of salvage or subrogation amounts, known or unknown, to the Subscribing Reinsurer under this Contract.

J. In the event of any conflict between this Article and any other article of this Contract, the terms of this Article shall control.

K. This Article shall survive the termination of this Contract.

Article XV - Salvage and Subrogation

The Reinsurer shall be credited with recoveries from salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.  Recoveries therefrom shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Company’s opinion, it is economically reasonable to do so.

16

Article XVI - Premium

A. As premium for each excess layer of reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer the greater of the following for each contract year (except the runoff contract year, if any):

1. The amount (or pro rata portion thereof if this Contract is terminated prior to the end of any 12-month contract year in accordance with the provisions of the Special Termination Article), shown as “Annual Minimum Premium” for that excess layer in Schedule A attached hereto; or

2. The percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium for the contract year.

B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as “Annual Deposit Premium” for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” for that excess layer in Schedule A attached hereto, on January 1, April 1, July 1 and October 1 of each contract year (except the runoff contract year, if any).  However, no deposit premium installments shall be due after the effective date of termination.

C. Within 60 days following the end of each contract year (except the runoff contract year, if any), the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the contract year, computed in accordance with paragraph A, and any additional premium due the Reinsurer for each such excess layer shall be remitted by the Company with its report.  If the premium so computed for any excess layer is less than the previously paid, but more than the minimum premium, for that excess layer, the balance shall be returned by the Reinsurer to the Company within 30 days of the report.

D. In the event this Contract is terminated on a “runoff” basis, the Company shall pay the Reinsurer premium for each excess layer for the runoff contract year equal to the percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium applicable to subject business for that excess layer during the runoff contract year.  Within 30 days following the end of each three-month period during the runoff contract year, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the applicable three-month period, computed in accordance with this paragraph, and such premium shall be remitted by the Company with its report.

E. “Net earned premium” as used herein is defined as the Company’s gross earned premium for the classes of business subject to this Contract (exclusive of premium for business covered by the Minnesota Workers’ Compensation Reinsurance Association), adjusted for experience modification, discounts, credits, surcharges, expense constants and deductible credits, plus or minus the Reinsurer’s pro rata share of any premium arising from audit adjustments, minus premiums paid for facultative reinsurance which inures to the benefit of this Contract.

17

Article XVII - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (BRMA 23A) (hereinafter referred to as the “Intermediary”) by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 30 days after the proof of loss and demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 30 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss and demand for payment was transmitted to the Reinsurer.

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 above, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

18

E. Interest penalties arising out of the application of this Article that are $50,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article XVIII - Offset

Each party hereto has the right, which may be exercised at any time, to offset any amounts, whether on account of premiums or losses or otherwise, due from such party to another party under this Contract or any other reinsurance contract heretofore or hereafter entered into between them, against any amounts, whether on account of premiums or losses or otherwise due from the latter party to the former party.  The party asserting the right of offset may exercise this right, whether as assuming or ceding insurer or in both roles in the relevant agreement or agreements.

Article XIX - Access to Records (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance.

Article XX - Liability of the Reinsurer

A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company’s policies and any endorsements thereon.  However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

Article XXI - Net Retained Lines (BRMA 32E)

A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

19

B. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article XXII - Errors and Omissions (BRMA 14F)

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article XXIII - Currency (BRMA 12A)

A. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article XXIV - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article XXV - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

20

Article XXVI - Reserves

(Applies only to a reinsurer which (1) does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Company’s reserves, or (2) which is or becomes rated “B++” or lower or holds a “Not Rated” rating by A.M. Best or is or becomes rated “BBB+” or lower or holds an “NR” rating by Standard & Poor’s, unless the reinsurer has an A.M. Best’s rating of “A” or better or Standard & Poor’s rating of “A” or better and group policyholders’ surplus equal to or above $2,000,000,000 at the inception of this Contract)

A. As regards policies or bonds issued by the Company coming within the scope of this Contract, the Company agrees that when it shall file with the insurance regulatory authority or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer.  The Reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the Reinsurer and allocated loss adjustment expense relating thereto, losses and loss adjustment expense paid by the Company but not recovered from the Reinsurer, plus reserves for losses and loss adjustment expense incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by Regulation 114 trust accounts, funds withheld, cash advances or a Letter of Credit, or combination thereof.  For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund and the Hannover Re U.S. Master Trust shall be considered acceptable funding instruments.  The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.

B. When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves.  Such Letter of Credit shall be issued for a period of not less than one year, and shall contain an “evergreen” clause, which automatically extends the term for one year from its date of expiration or any future expiration date unless 30 days (60 days where required by insurance regulatory authorities) prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

C. The Reinsurer and Company agree that the Letters of Credit provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company for the following purposes, unless otherwise provided for in a separate Trust Agreement:

1. To reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;

2. To make refund of any sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract, if so requested by the Reinsurer;

21

3. To fund an account with the Company for the Reinsurer’s Obligations.  Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer;

4. To pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual amount required for subparagraphs 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.  All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

D. The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

E. At quarterly intervals and on an estimated basis 45 days prior to each December 31, or more frequently as agreed but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1. If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such excess, secure delivery to the Company of an amendment to the Letter of Credit increasing the amount of credit by the amount of such difference.

2. If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of credit as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of credit available by the amount of such excess credit.

Article XXVII - Insolvency

A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

22

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees.

Article XXVIII - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the Umpire shall be appointed in accordance with the procedures of the American Arbitration Association.

B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

23

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

Article XXIX - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Article XXX - Agency Agreement (BRMA 73A)

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies (subject to the provisions of the Insolvency Article) for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

Article XXXI - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

24

Article XXXII - Intermediary (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Benfield Inc.  Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at:

North Palm Beach, Florida, this ________ day of ___________________ in the year ________.

__________________________________________________________

AmCOMP Preferred Insurance Company

AmCOMP Assurance Corporation

any and all insurance companies which are now or hereafter come under

 the same ownership or management as the AmCOMP Group

25

Schedule A

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

	First Excess	Second Excess
Company’s Retention	$2,000,000	$5,000,000
Reinsurer’s Per Occurrence Limit	$3,000,000	$5,000,000
Reinsurer’s Terrorism Per Occurrence Limit	$3,000,000	$5,000,000
Reinsurer’s Contract Year Limit	$21,000,000	$10,000,000
Reinsurer’s Contract Year Terrorism Limit	$3,000,000	$5,000,000
Annual Minimum Premium	$4,054,800	$1,000,000
Premium Rate	2.1800%	0.5376%
Annual Deposit Premium	$5,068,500	$1,250,000
Quarterly Deposit Premium	$1,267,125	$312,500

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

Schedule A

Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)

(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operation of paragraph (1) of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II of this paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

I. It is agreed that the policy does not apply under any liability coverage, to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II. Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III. The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

(a) become effective on or after 1st May, 1960, or

(b) become effective before that date and contain the Limited Exclusion Provision set out above;

provided this paragraph (2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(3) Except for those classes of policies specified in Clause II of paragraph (2) and without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

I. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

(a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

(b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

Page 1 of 2

II. Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to

(immediate medical or surgical relief

(first aid,

to expenses incurred with respect to

(bodily injury, sickness, disease or death

(bodily injury

resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

III. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

resulting from the hazardous properties of nuclear material, if

(a) the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;

(b) the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

(c) the

(injury, sickness, disease, death or destruction

(bodily injury or property damage

arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to

(injury to or destruction of property at such nuclear facility

(property damage to such nuclear facility and any property thereat.

IV. As used in this endorsement:

“hazardous properties” include radioactive, toxic or explosive properties; “nuclear material” means source material, special nuclear material or byproduct material; “source material”, “special nuclear material”, and “byproduct material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; “waste” means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear facility” means

(a) any nuclear reactor,

(b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling processing or packaging waste,

(c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

(d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or “destruction,”

(“property damage” includes all forms of radioactive contamination of property,

(includes all forms of radioactive contamination of property.

V. The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

(i) Garage and Automobile Policies issued by the Reassured on New York risks, or

(ii) statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(4) Without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that paragraphs (2) and (3) above are not applicable to original liability policies of the Reassured in Canada and that with respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent Insurance Conference of Canada.

*NOTE. The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

Page 2 of 2

Nuclear Incident Exclusion Clause Reinsurance - No. 4

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operations of Nuclear Incident Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 - Boiler and Machinery and paragraph (1) of this clause, it is understood and agreed that for all purposes as respects the reinsurance assumed by the Reinsurer from the Reassured, all original insurance policies or contracts of the Reassured (new, renewal and replacement) shall be deemed to include the applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any subsequent revisions thereto as agreed upon and approved by the Insurance Industry and/or a qualified Advisory or Rating Bureau.

Pollution Exclusion Clause - General Liability - Reinsurance

A. This reinsurance excludes all loss and/or liability accruing to the reinsured company as a result of:

1. bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

a. at or from premises owned, rented or occupied by a named insured;

b. at or from any site or location used by or for a named insured or others for the handling, storage, disposal, processing or treatment of waste;

c. which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for a named insured or any person or organization for whom a named insured may be legally responsible; or

d. at or from any site or location on which a named insured or any contractors or subcontractors working directly or indirectly on behalf of a named insured are performing operations:

(i) if the pollutants are brought on or to the site or location in connection with such operations; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants;

2. any governmental direction or request that a named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.

B. Subparagraphs A(1)(a) and A(1)(d)(i) above do not apply to bodily injury or property damage caused by heat, smoke or fumes from a hostile fire.

C. “Hostile fire” means a fire which becomes uncontrollable or breaks out from where it was intended to be.

D. “Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.  Waste includes material to be recycled, reconditioned or reclaimed.

War Risk Exclusion Clause (Reinsurance)

As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority.

Nevertheless, this clause shall not be construed to apply to loss or damage occasioned by riots, strikes, civil commotion, vandalism or malicious damage.

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

First Excess Workers’ Compensation Reinsurance

Reinsurer Participation

Munich Reinsurance America, Inc.	25.0%
Total	25.0% part of 100% share in the interests and liabilities of the “Reinsurer”

Interests and Liabilities Agreement

of

Munich Reinsurance America, Inc.

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Excess Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           25.0%of the First Excess Workers’ Compensation Reinsurance

                                0%of the Second Excess Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Princeton, New Jersey, this _______ day of ______________________ in the year ________.

__________________________________________________________

Munich Reinsurance America, Inc.

EX-10.55

Exhibit 10.55

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

Table of Contents

Article		Page
I	Classes of Business Reinsured	1
II	Term	1
III	Special Termination	2
IV	Territory (BRMA 51A)	3
V	Exclusions	3
VI	Retention and Limit	7
VII	Reinstatement	7
VIII	Definitions	8
IX	Other Reinsurance	11
X	Federal Terrorism Recovery	11
XI	Annuities at Company’s Option	11
XII	Claims	12
XIII	Commutation	12
XIV	Special Commutation	13
XV	Salvage and Subrogation	14
XVI	Premium	15
XVII	Late Payments	16
XVIII	Offset	17
XIX	Access to Records (BRMA 1D)	17
XX	Liability of the Reinsurer	17
XXI	Net Retained Lines (BRMA 32E)	18
XXII	Errors and Omissions	18
XXIII	Currency (BRMA 12A)	18
XXIV	Taxes (BRMA 50B)	18
XXV	Federal Excise Tax (BRMA 17D)	18
XXVI	Reserves	19
XXVII	Insolvency	20
XXVIII	Arbitration	21
XXIX	Service of Suit (BRMA 49C)	22
XXX	Agency Agreement (BRMA 73A)	22
XXXI	Governing Law (BRMA 71B)	22
XXXII	Intermediary (BRMA 23A)	23
	Schedule A

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

(hereinafter referred to collectively as the “Company”)

by

The Subscribing Reinsurer(s) Executing the

Interests and Liabilities Agreement(s)

Attached Hereto

(hereinafter referred to as the “Reinsurer”)

Article I - Classes of Business Reinsured

By this Contract the Reinsurer agrees to reinsure the excess liability which may accrue to the Company under its policies, contracts and binders of insurance or reinsurance (hereinafter called “policies”) in force at the effective date hereof or issued or renewed on or after that date, and classified by the Company as Workers’ Compensation and Employers Liability business, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

Article II - Term

A. This Contract shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, with respect to losses arising out of occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009.

B. Unless the Company elects that the Reinsurer have no liability for losses arising out of occurrences commencing at or after the effective time and date of termination or expiration, and so notifies the Reinsurer prior to or as promptly as possible after the effective date of termination or expiration, reinsurance hereunder on business in force at the effective time and date of termination or expiration shall remain in full force and effect until expiration, cancellation or next premium anniversary of such business, whichever first occurs, but in no event beyond 12 months, plus odd time (not to exceed 18 months in all), following the effective time and date of termination or expiration.

1

C. Notwithstanding the provisions above, in the event that any policy subject to this Contract is required by statute, regulation or by order of an insurance department to be continued in force, the Reinsurer agrees to extend reinsurance coverage hereunder following the termination or expiration of this Contract with respect to such policy until the first date that the Company may lawfully non-renew, cancel or terminate such policy, whether or not the Company actually does non-renew, cancel or terminate such policy.  However, under no circumstances shall runoff coverage under this paragraph exceed 36 months.

D. Seven years after the termination or expiration of this Contract, the Company shall advise the Reinsurer of any outstanding claims and/or occurrences (each hereinafter referred to as a “claim”) arising during the term hereof, which have not been finally settled and which may cause a recovery under this Contract, and no liability shall attach hereunder for any claim not reported to the Reinsurer within this seven-year period.

Article III - Special Termination

Notwithstanding the provisions of paragraph A of the Term Article, the Company may terminate a Subscribing Reinsurer’s percentage share in this Contract if any of the following circumstances occur, as clarified by public announcement for subparagraphs 1 through 6 below and upon discovery for subparagraph 7 below.  The Company shall have 120 days from the date of public announcement or discovery, as applicable, to exercise its option to terminate a Subscribing Reinsurer’s percentage share in this Contract.  The effective date of special termination may not be sooner than one day after the Company provides the Subscribing Reinsurer notice of its election to specially terminate, unless mutually agreed otherwise.

1. The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at the inception of this Contract has been reduced by more than 25.0% of the amount of surplus (or the applicable equivalent) 12 months prior to that date; or

2. The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) at any time during the term of this Contract has been reduced by more than 25.0% of the amount of surplus (or the applicable equivalent) at the date of the Subscribing Reinsurer’s most recent financial statement filed with regulatory authorities and available to the public as of the inception of this Contract; or

3. The Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (including any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (including any “NR” rating); or

4. The Subscribing Reinsurer has become merged with, acquired by or controlled by any other entity or individual(s) not controlling the Subscribing Reinsurer’s operations previously; however, this subparagraph shall not apply to the sale of stock to a non-acquiring entity or where the acquiring company, corporation or individual(s) has an A.M. Best’s rating higher than the rating held by the Subscribing Reinsurer at the inception of this Contract; or

2

5. A State Insurance Department or other legal authority has ordered the Subscribing Reinsurer to cease writing business; or

6. The Subscribing Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary) or proceedings have been instituted against the Subscribing Reinsurer for the appointment of a receiver, liquidator, rehabilitator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

7. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business.

Article IV - Territory (BRMA 51A)

The territorial limits of this Contract shall be identical with those of the Company’s policies.

Article V - Exclusions

A. This Contract does not apply to and specifically excludes the following:

1. Reinsurance assumed by the Company under obligatory reinsurance agreements, except:

a. Agency reinsurance where the policies involved are to be reunderwritten in accordance with the underwriting standards of the Company and reissued as Company policies at the next anniversary or expiration date;

b. Intercompany reinsurance between any of the reinsured companies under this Contract.

2. Ex-gratia payments.

3. Risks subject to a deductible in excess of $25,000, or a self-insured retention excess of $25,000, unless such deductible or self-insured retention is otherwise mandated by statute or regulatory authority.

4. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)” and loss or liability defined in the “Nuclear Incident Exclusion Clause - Reinsurance - No. 4” attached to and forming part of this Contract.

5. Pollution liability coverages excluded under the provisions of the “Pollution Exclusion Clause - General Liability - Reinsurance (BRMA 39C)” attached to and forming part of this Contract.

6. Liability as a member, subscriber or reinsurer of any Pool, Syndicate or Association, but this exclusion shall not apply to Assigned Risk Plans or similar state-mandated plans.

3

7. All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund.  “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

8. Loss or liability as excluded in the “War Risk Exclusion Clause (Reinsurance)” attached to and forming part of this Contract.  However, this exclusion shall not apply to an act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

9. Operation under the jurisdiction of the United States Longshore and Harbor Workers’ Compensation Act or the Jones Act, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

10. Operations employing the process of nuclear fission or fusion or handling of radioactive material, which operations include but are not limited to:

a. The use of nuclear reactors such as atomic piles, particle accelerators or generators; or

b. The use, handling or transportation of radioactive materials, or the use, handling or transportation of any weapon of war or explosive device employing nuclear fission or fusion.

However, subparagraphs a and b above shall not apply to:

i. The exclusive use of particle accelerators incidental to ordinary industrial or education research pursuits, or

ii. The exclusive use, handling or transportation of radioisotopes for medical or industrial use, or to radium or radium compounds.

11. Operation of docks or wharves as related to port authorities.

12. The manufacturing, mining, refining, processing, distribution, installation, removal or encapsulment of asbestos.

13. Risks involving known exposure to the following substances:

a. Dioxin;

b. Polychlorinated biphenols;

c. Asbestos.

14. All railway operations except sidetrack agreements.

4

15. Amusement parks, carnivals or circuses.  This exclusion shall not apply to miniature golf courses or driving range operations.

16. Subaquaeous operations.

17. Underground mining; however, this exclusion shall not be construed to apply to open-pit quarrying or “surface mining” operations.

18. Blasting operations, except for incidental exposures (i.e., 10.0% or less of the insured’s estimated payroll when the account is quoted).

19. Demolition of buildings or structures in excess of five stories.

20. Shoring and moving of buildings or structures, or underpinning that involves pier and beam construction, commercial buildings with more than three stories or hillside building reinforcements.  However, this exclusion shall not apply to foundation repair risks for which neither the insured nor its employees are in tunnels or are otherwise working under buildings.

21. Erection or repair of scaffolds if 10.0% or more of the insured’s annual remuneration is attributed to NCCI Class Code 9534 or 9529.

22. Construction of tunnels or dams.

23. Fireworks, fuses, or any explosive substance (as defined below) as follows:

a. Manufacturers or importers of such items;

b. Loading of such items into containers for use as explosive objects, propellant charges or detonation devices and the storage thereof (except as previously provided for, on an incidental basis, in exclusion 18);

c. Manufacturers or importers of any product in which such items are an ingredient;

d. Handling, storage, transportation or use of such items (except as previously provided for, on an incidental basis, in exclusion 18).

“Explosive substance” is defined as any substance manufactured for the express purpose of exploding as differentiated from commodities used industrially and which are only incidentally explosive.

24. Onshore and offshore gas and oil drilling operations.

25. Operations where principal business includes the use of any owned or unowned aircraft, or any device or machine intended for and/or aiding in the achievement of atmospheric flight, projection or orbit, and/or the ownership or operation of any airport.  This exclusion shall not apply where exposure is incidental (i.e., constitutes 10.0% or less of the insured’s payroll) to the principal business operations and the aircraft contains eight seats or fewer.

5

26. Municipal law enforcement organizations and municipal fire fighting organizations, whether professional or voluntary.  This exclusion shall not apply to off-duty law enforcement officers when employed by an entity other than a municipality for duties performed within the scope of the job for which they were hired.

27. Logging or forestry operations.

28. Professional employment organizations (PEOs).

29. Professional sports teams.

30. Operations where the principal business of the risk is manufacturing, production, distribution, refining or storage of natural or artificial fuel, gas, butane, propane, liquefied petroleum gases or gasoline.  This exclusion shall not apply to any risk whose principal business operations are any of the following:

a. Retail gasoline service station, either full or self service, or retail gasoline marina;

b. Convenience store with gasoline sales with its petroleum gas and/or storage tanks located below ground.

31. Loss, damage, liability, cost or expense of whatsoever nature directly caused by, contributed to by, resulting from or arising out of or in connection with any act of terrorism (as defined in paragraph G of the Definitions Article) and/or threat thereof, involving the use of any biological, chemical or nuclear agent, material, device or weapon.

32. Business reinsured by the Minnesota Workers’ Compensation Reinsurance Association, whether contractually assumed or imposed by law, including, but not limited to, direct or indirect loss, damage, liability, cost or expense.  However, this exclusion shall not apply to:

a. Losses paid within the Company’s net retention; or

b. Losses paid in excess of the benefits allowed under Minnesota Workers’ Compensation law.

B. In the event the Company is inadvertently bound on any risk which is excluded under subparagraph 9, subparagraphs 14 through 27, or subparagraph 30 of paragraph A above, the reinsurance provided under this Contract shall apply on such risk until discovery by the Company of the existence of such risk and for 30 days thereafter or for a period of time specific to the applicable state cancellation requirements, not to exceed 120 days.  This limitation shall not apply as respects Arizona.  Coverage shall cease after such time or at policy anniversary as respects Arizona policies, unless the Company has received from the Reinsurer written notice of its approval of such risk within 30 days.

C. Notwithstanding the foregoing, any reinsurance falling within the scope of one or more of the exclusions set forth above that is specially accepted by the Reinsurer from the Company shall be covered under this Contract and subject to all of the terms and conditions hereof, except as such terms are modified by the special acceptance.  In the event a reinsurer becomes a party to this Contract subsequent to one or more special acceptances hereunder, the new reinsurer shall automatically accept such special acceptance(s) as being covered hereunder.  Further, if one or more reinsurers under this Contract agreed to special acceptance(s) under the contract replaced by this Contract, such special acceptance(s) shall be automatically covered hereunder with respect to the interests and liabilities of such reinsurer(s).

6

Article VI - Retention and Limit

A. As respects each excess layer of reinsurance coverage provided by this Contract, the Company shall retain and be liable for the first amount of ultimate net loss (regardless of the combination of classes of business, number of policies or number of interests involved), shown as “Company’s Retention” for that excess layer in Schedule A attached hereto, arising out of each occurrence.  The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such ultimate net loss exceeds the Company’s applicable retention, but the liability of the Reinsurer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one occurrence.

B. The Company’s ultimate net loss, for the purpose of this Contract, shall be deemed to be a maximum of $10,000,000 any one life from the ground up.

C. The Company deems that the maximum Employers Liability policy limits subject hereto shall not exceed $2,000,000.  Policy limits in excess of $2,000,000 may be submitted by special acceptance to the Reinsurer for coverage hereunder, subject to the provisions of paragraph C of the Exclusions Article.

Article VII - Reinstatement

A. In the event all or any portion of the reinsurance under any excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the occurrence commences hereon.  For each amount so reinstated the Company agrees to pay additional premium equal to the product of the following:

1. The percentage of the occurrence limit for the excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

2. The earned reinsurance premium for the excess layer reinstated for the term of this Contract, including the runoff period, if any (exclusive of reinstatement premium).

B. Whenever the Company requests payment by the Reinsurer of any loss under any excess layer hereunder, the Company shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer.  If the earned reinsurance premium for any excess layer for the term of this Contract (including the runoff period, if any) has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the annual deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the term of this Contract (including the runoff period, if any) has been finally determined.  Any reinstatement premium shown to be due the Reinsurer for any excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Company concurrently with payment by the Reinsurer of the requested loss for that excess layer.  Any return reinstatement premium shown to be due the Company shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Company’s statement.

7

C. Notwithstanding anything stated herein, the liability of the Reinsurer hereunder shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one occurrence, nor shall it exceed the amount, shown as “Reinsurer’s Term Limit” for that excess layer in Schedule A attached hereto, as respects loss or losses arising out of all occurrences during the term of this Contract.

Article VIII - Definitions

A. “Ultimate net loss” as used herein is defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and any loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims, after deduction of all recoveries from subrogation, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not.  Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

B. “Loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

1. “Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

2. “Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.  An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

8

If any provision of this paragraph B shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

C. “Occurrence” as used herein is defined as an accident or occurrence or a series of accidents or occurrences arising out of or caused by one event, whether involving one or more of the Company’s policies, except that:

1. As respects Workers’ Compensation policies, each occupational or industrial disease or cumulative injury case contracted by an employee of an insured shall be deemed to have been caused by a separate occurrence commencing on:

a. The date of disability for which compensation is payable if the case is compensable under the Workers’ Compensation Law;

b. The date disability due to the disease actually began if the case is not compensable under the Workers’ Compensation Law; or

c. The date of cessation of employment if claim is made after employment has ceased.

2. Notwithstanding the provisions of subparagraph 1 above, as respects losses resulting from occupational or industrial disease and cumulative injury suffered by employees of an insured for which the employer is liable as a result of a sudden and accidental event not exceeding 72 hours in duration, all such losses shall be considered one occurrence and may be combined with losses not classified as occupational or industrial disease or cumulative injury which arise out of the same event and the combination of such losses shall be considered as one occurrence within the meaning hereof.

3. Notwithstanding the foregoing, the following shall apply to occurrences involving natural disasters:

a. An occurrence shall be limited to damage, injury or loss arising out of a natural disaster during any continuous 168 hour period.

b. The Company may choose the date and time when such 168 hour period commences and if the occurrence is of greater duration than 168 hours, the Company may divide such occurrence into two or more occurrences, provided no two periods overlap and provided no period commences earlier than the date and time of the first loss to the Company in such occurrence.

c. “Natural disaster” shall mean loss caused by the perils of tornado, cyclone, windstorm, hurricane and hail arising from the same atmospheric disturbance; earthquake, including ensuing fire, landslide, mudslide, flood, tidal wave; volcanic eruptions; flood; tides; tidal wave; landslide/mudslide; and meteors.

9

D. “Occupational or industrial disease” shall mean any abnormal condition that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has been caused by exposure to a disease producing agent or agents present in the workers’ occupational environment; and

3. It has resulted in a disability or death.

E. “Cumulative injury” is any injury that fulfills all of the following conditions:

1. It is not traceable to a definite compensable accident occurring during the employee’s present or past employment; and

2. It has occurred from, and has been aggravated by, a repetitive employment-related activity; and

3. It has resulted in a disability or death.

F. “Loss adjustment expense” as used herein shall mean expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes.  Loss adjustment expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters and declaratory judgment expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, but shall not include office expenses or salaries of the Company’s regular employees other than medical management personnel whose cost the Company will bill to specific cases on a time and expense basis.

G. “Act of terrorism” as used herein shall mean either:

1. Any act of any person or persons either acting on behalf of or in connection with any organization or group with activities directed towards overthrowing, intimidating, coercing or influencing any government de jure or de facto or its populace or its economic, political or social systems, by force, violence, weapons of mass destruction, disruption or subversion of communication and information system infrastructures and/or its content thereof, or sabotage and/or threat therefrom; or

2. An act of terrorism that is certified by the Secretary of Treasury, in concurrence with the Secretary of State and the Attorney General of the United States.

Notwithstanding the above, in the event of an occurrence which arises out of an act of workplace violence and is not consistent with the provisions of subparagraphs 1 and 2 of this paragraph G, such loss shall be covered hereunder, subject to the provisions of the Retention and Limit Article and all other provisions of this Contract and shall not be considered an act of terrorism.  Further, any occurrence which is not or cannot be determined, classified or certified in accordance with the provisions of subparagraphs 1 and 2 of this paragraph G shall be covered hereunder and not considered an act of terrorism.

10

Article IX - Other Reinsurance

A. The Company shall be permitted to carry facultative reinsurance, recoveries under which shall inure to the benefit of this Contract.

B. The Company shall be permitted to carry underlying quota share reinsurance and underlying excess reinsurance, recoveries under which shall inure solely to the benefit of the Company and be entirely disregarded in applying all of the provisions of this Contract.

Article X - Federal Terrorism Recovery

A. Any loss reimbursement the Company receives from the United States Government under the Terrorism Risk Insurance Act of 2002, as amended by the Terrorism Risk Insurance Extension Act of 2005 and any subsequent amendments or extensions thereof (together the “Terrorism Act”) as a result of occurrences commencing during the term of this Contract shall inure to the benefit of this Contract in the proportion that the Company’s insured losses (as defined in the Terrorism Act) in that occurrence under policies reinsured under this Contract bear to the Company’s total insured losses in that occurrence.

B. If a loss reimbursement received by the Company under the Terrorism Act is based on the Company’s insured losses in more than one occurrence and the United States Government does not designate the amount allocable to each occurrence, the reimbursement shall be prorated in the proportion that the Company’s insured losses in each occurrence bear to the Company’s total insured losses arising out of all occurrences to which the recovery applies.

Article XI- Annuities at Company’s Option

A. Whenever the Company is required, or elects, to purchase an annuity or to negotiate a structured settlement in excess of the retention of this Contract, either in satisfaction of a judgment or in an out-of-court settlement or otherwise, the cost of the annuity or the structured settlement, as the case may be, shall be deemed part of the Company’s ultimate net loss, provided such annuity or structured settlement terms grant the Company full and final release as respects the indemnity portion of the settlement.  Additionally, it is the Company’s intent to place all annuities or structured settlements with a carrier whose A.M. Best’s rating is “A” or better.

B. The terms “annuity” or “structured settlement” shall be understood to mean any insurance policy, lump sum payment, agreement or device of whatever nature resulting in the payment of a lump sum by the Company in settlement of any or all future liabilities which may attach to it as a result of an occurrence.

C. In the event the Company purchases an annuity which inures in whole or in part to the benefit of the Reinsurer, it is understood that the liability of the Reinsurer is not released thereby. In the event the Company is required to provide benefits not provided by the annuity for whatever reason, the Reinsurer shall pay its share of any loss.

11

Article XII - Claims

A. Whenever a claim or settlement by the Company appears likely, in the sole judgment of the Company, to result in a claim under this Contract, the Company shall notify the Reinsurer.  Further, the Company shall notify the Reinsurer whenever a claim involves a fatality, amputation, spinal cord damage, brain damage, blindness or extensive burns, regardless of liability, including all subsequent developments.  The Reinsurer shall have the right to participate, at its own expense, in the defense of any claim or suit or proceeding involving this reinsurance.

B. All claim settlements made by the Company, provided such settlements are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid by the Company.

Article XIII - Commutation

A. Either the Company or the Reinsurer may request commutation of that portion of any excess loss hereunder represented by any outstanding claim or claims after seven years from the date of an occurrence.  If both parties desire to commute a claim or claims, then within 60 days after such agreement, the Company shall submit a statement of valuation of the outstanding claim or claims showing the elements considered reasonable to establish the ultimate net loss and the Reinsurer shall pay the amount requested.  Commutation of loss will be calculated on the present value of the loss within the layer of coverage.

B. If agreement, as outlined in the paragraph above, cannot be reached, the effort can be abandoned or, alternately, the Company and the Reinsurer may mutually appoint an actuary or appraiser to investigate, determine and capitalize such claim or claims.  If both parties then agree, the Reinsurer shall pay its proportion of the amount so determined to be the capitalized value of such claim or claims.

C. If the parties, as outlined in the paragraphs above, fail to agree, they may abandon the effort or they may agree to settle any difference using a panel of three actuaries, one to be chosen by each party and the third by the two so chosen.  If either party refuses or neglects to appoint an actuary within 60 days, the other party may appoint two actuaries.  If the two actuaries fail to agree on the selection of a third actuary within 60 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.  All the actuaries shall be regularly engaged in the valuation of Workers’ Compensation claims and shall be Fellows of the Casualty Actuarial Society or Members of the American Academy of Actuaries.  None of the actuaries shall be under the control of either party to this Contract.

D. Each party shall submit its case to its actuary within 60 days of the appointment of the third actuary.  The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties.  The expense of the actuaries and of the commutation shall be equally divided between the two parties.  Said commutation shall take place in North Palm Beach, Florida, unless some other place is mutually agreed upon by the Company and the Reinsurer.

12

Article XIV - Special Commutation

A. In the event a Subscribing Reinsurer meets one or more of the following conditions, the Company may require a commutation of that portion of any excess loss hereunder represented by any outstanding claim or claims, including any related loss adjustment expense:

1. The Subscribing Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- (including any “Not Rated” rating) and/or Standard & Poor’s rating has been assigned or downgraded below BBB+ (including any “NR” rating); or

2. The Subscribing Reinsurer has ceased assuming new or renewal property or casualty treaty reinsurance business.

“Outstanding claim or claims” shall be defined as known or unknown claims, including any billed yet unpaid claims.  However, unless otherwise mutually agreed, this paragraph A shall not apply unless the outstanding claim or claims is for an amount not less than $5,000.

B. If the Company elects to require commutation as provided in paragraph A above, the Company shall submit a Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Company.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Company and the methodology employed to calculate the excess loss.  The Subscribing Reinsurer shall then pay the amount requested within 30 calendar days of receipt of such Statement of Valuation, unless the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests such amount.

C. If the Subscribing Reinsurer needs additional information from the Company to assess the Company’s Statement of Valuation or contests the amount requested, the Subscribing Reinsurer shall so notify the Company within 15 calendar days of receipt of the Company’s Statement of Valuation.  The Company shall supply any reasonably requested information to the Subscribing Reinsurer within 15 calendar days of receipt of the notification.  Within 30 calendar days of the date of the notification or of the receipt of the information, whichever is later, the Subscribing Reinsurer shall provide the Company with its Statement of Valuation of the outstanding claim or claims as of the last day of the month immediately preceding the month in which the Company elects to require commutation, as determined by the Subscribing Reinsurer.  Such Statement of Valuation shall include the elements considered reasonable to establish the excess loss and shall set forth or attach the information relied upon by the Subscribing Reinsurer and the methodology employed to calculate the excess loss.

D. In the event the Subscribing Reinsurer’s Statement of Valuation of the outstanding claim or claims is viewed as unacceptable to the Company, the Company may either abandon the commutation effort, or may seek to settle any difference by using an independent actuary agreed to by the parties.

13

E. If the parties cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, then each party shall appoint an actuary as party arbitrators for the limited and sole purpose of selecting an independent actuary.  If the actuaries cannot agree on an acceptable independent actuary within 15 calendar days of the date of the Subscribing Reinsurer’s Statement of Valuation, the Company shall supply the Subscribing Reinsurer with a list of at least three proposed independent actuaries, and the Subscribing Reinsurer shall select the independent actuary from that list.

F. Upon selection of the independent actuary, both parties shall present their respective written submissions to the independent actuary.  The independent actuary may, at his or her discretion, request additional information.  The independent actuary shall issue his or her decision within 45 calendar days after the written submissions have been filed and any additional information has been provided.

G. The decision of the independent actuary shall be final and binding.  The expense of the independent actuary shall be equally divided between the two parties.  For the purposes of this Article, unless mutually agreed otherwise, an “independent actuary” shall be an actuary who satisfies each of the following criteria:

1. Is regularly engaged in the valuation of claims resulting from lines of business subject to this Contract; and

2. Is either a Fellow of the Casualty Actuarial Society or of the American Academy of Actuaries; and

3. Is disinterested and impartial regarding this commutation.

H. Notwithstanding paragraphs A, B and C above, in the event that the Subscribing Reinsurer no longer meets any of the conditions specified in subparagraph 1 or 2 in paragraph A above, this commutation may continue on a mutually agreed basis.

I. Payment by the Subscribing Reinsurer of the amount requested in accordance with paragraph B, C or F above, shall release the Subscribing Reinsurer from all further liability for outstanding claim or claims, known or unknown, under this Contract and shall release the Company from all further liability for payments of salvage or subrogation amounts, known or unknown, to the Subscribing Reinsurer under this Contract.

J. In the event of any conflict between this Article and any other article of this Contract, the terms of this Article shall control.

K. This Article shall survive the expiration or termination of this Contract.

Article XV - Salvage and Subrogation

The Reinsurer shall be credited with recoveries from salvage (i.e., reimbursement obtained or recovery made by the Company, less the actual cost, excluding salaries of officials and employees of the Company and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder.  Recoveries therefrom shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Company for its primary loss.  The Company hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Company’s opinion, it is economically reasonable to do so.

14

Article XVI - Premium

A. As premium for each excess layer of reinsurance coverage provided by this Contract (except for the runoff period, if any), the Company shall pay the Reinsurer the greater of the following:

1. The amount, shown as “Annual Minimum Premium” for that excess layer in Schedule A attached hereto (or a pro rata portion thereof if this Contract is terminated prior to January 1, 2009); or

2. The percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium for the term of this Contract (except for the runoff period, if any).

B. The Company shall pay the Reinsurer an annual deposit premium for each excess layer of the amount, shown as “Annual Deposit Premium” for that excess layer in Schedule A attached hereto, in four equal installments of the amount, shown as “Quarterly Deposit Premium” for that excess layer in Schedule A attached hereto, on January 1, April 1, July 1 and October 1 of 2008.  However, no deposit premium installments shall be due after the effective date of termination.

C. Within 60 days following the termination or expiration of this Contract, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the term of this Contract (except for the runoff period, if any), computed in accordance with paragraph A, and any additional premium due the Reinsurer for each such excess layer shall be remitted by the Company with its report.  If the premium so computed for any excess layer is less than the previously paid, but more than the minimum premium for that excess layer, the balance shall be refunded by the Reinsurer to the Company within 30 days of the report.

D. In the event this Contract is terminated or expires on a “runoff” basis, the Company shall pay the Reinsurer premium for each excess layer for the runoff period equal to the percentage, shown as “Premium Rate” for that excess layer in Schedule A attached hereto, of the Company’s net earned premium applicable to subject business for that excess layer during the runoff period.  Within 30 days following the end of each three-month period during the runoff period, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder for each excess layer for the applicable three-month period, computed in accordance with this paragraph, and such premium shall be remitted by the Company with its report.

E. “Net earned premium” as used herein is defined as the Company’s gross earned premium for the classes of business subject to this Contract (exclusive of premium for business covered by the Minnesota Workers’ Compensation Reinsurance Association), adjusted for experience modification, discounts, credits, surcharges, expense constants and deductible credits, plus or minus the Reinsurer’s pro rata share of any premium arising from audit adjustments, minus policyholder dividends paid and/or declared and premiums paid for facultative reinsurance which inures to the benefit of this Contract.

15

Article XVII - Late Payments

A. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

B. In the event any premium, loss or other payment due either party is not received by the intermediary named in the Intermediary Article (BRMA 23A) (hereinafter referred to as the “Intermediary”) by the payment due date, the party to whom payment is due may, by notifying the Intermediary in writing, require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

1. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

2. 1/365ths of the six-month United States Treasury Bill rate as quoted in The Wall Street Journal on the first business day of the month for which the calculation is made; times

3. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the Intermediary.

C. The establishment of the due date shall, for purposes of this Article, be determined as follows:

1. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal by the Intermediary of the initial billing for each such payment.

2. Any claim or loss payment due the Company hereunder shall be deemed due 30 days after the proof of loss and demand for payment is transmitted to the Reinsurer.  If such loss or claim payment is not received within the 30 days, interest will accrue on the payment or amount overdue in accordance with paragraph B above, from the date the proof of loss and demand for payment was transmitted to the Reinsurer.

3. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs 1 and 2 above, the due date shall be as provided for in the applicable section of this Contract.  In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

16

For purposes of interest calculations only, amounts due hereunder shall be deemed paid upon receipt by the Intermediary.

D. Nothing herein shall be construed as limiting or prohibiting a Subscribing Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract.  If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void.  If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings.  If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

E. Interest penalties arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

Article XVIII - Offset

Each party hereto has the right, which may be exercised at any time, to offset any amounts, whether on account of premiums or losses or otherwise, due from such party to another party under this Contract or any other reinsurance contract heretofore or hereafter entered into between them, against any amounts, whether on account of premiums or losses or otherwise due from the latter party to the former party.  The party asserting the right of offset may exercise this right, whether as assuming or ceding insurer or in both roles in the relevant agreement or agreements.

Article XIX - Access to Records (BRMA 1D)

The Reinsurer or its designated representatives shall have access at any reasonable time to all records of the Company which pertain in any way to this reinsurance.

Article XX - Liability of the Reinsurer

A. The liability of the Reinsurer shall follow that of the Company in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers and modifications of the Company’s policies and any endorsements thereon.  However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

B. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

17

Article XXI - Net Retained Lines (BRMA 32E)

A. This Contract applies only to that portion of any policy which the Company retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any policy which the Company retains net for its own account shall be included.

B. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Company to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

Article XXII - Errors and Omissions

Except as provided in paragraph D of the Term Article, inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

Article XXIII - Currency (BRMA 12A)

A. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

B. Amounts paid or received by the Company in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Company.

Article XXIV - Taxes (BRMA 50B)

In consideration of the terms under which this Contract is issued, the Company will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

Article XXV - Federal Excise Tax (BRMA 17D)

A. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

18

B. In the event of any return of premium becoming due hereunder the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Company or its agent should take steps to recover the tax from the United States Government.

Article XXVI - Reserves

(Applies only to a reinsurer which (1) does not qualify for full credit with any insurance regulatory authority having jurisdiction over the Company’s reserves, or (2) which is or becomes rated “B++” or lower or holds a “Not Rated” rating by A.M. Best or is or becomes rated BBB+ or lower or holds an “NR” rating by Standard & Poor’s)

A. As regards policies or bonds issued by the Company coming within the scope of this Contract, the Company agrees that when it shall file with the insurance regulatory authority or set up on its books reserves for losses covered hereunder which it shall be required by law to set up, it will forward to the Reinsurer a statement showing the proportion of such reserves which is applicable to the Reinsurer.  The Reinsurer hereby agrees to fund such reserves in respect of known outstanding losses that have been reported to the Reinsurer and loss adjustment expense relating thereto, losses and loss adjustment expense paid by the Company but not recovered from the Reinsurer, plus reserves for losses and loss adjustment expense incurred but not reported, as shown in the statement prepared by the Company (hereinafter referred to as “Reinsurer’s Obligations”) by Regulation 114 trust accounts, funds withheld, cash advances or a Letter of Credit, or combination thereof.  For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund shall be considered an acceptable funding instrument.  The Reinsurer shall have the option of determining the method of funding provided it is acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves.

B. When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure timely delivery to the Company of a clean, irrevocable and unconditional Letter of Credit issued by a bank meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and containing provisions acceptable to the insurance regulatory authorities having jurisdiction over the Company’s reserves in an amount equal to the Reinsurer’s proportion of said reserves.  Such Letter of Credit shall be issued for a period of not less than one year, and shall contain an “evergreen” clause, which automatically extends the term for one year from its date of expiration or any future expiration date unless 30 days (60 days where required by insurance regulatory authorities) prior to any expiration date the issuing bank shall notify the Company by certified or registered mail that the issuing bank elects not to consider the Letter of Credit extended for any additional period.

C. The Reinsurer and Company agree that the Letters of Credit provided by the Reinsurer pursuant to the provisions of this Contract may be drawn upon at any time, notwithstanding any other provision of this Contract, and be utilized by the Company or any successor, by operation of law, of the Company including, without limitation, any liquidator, rehabilitator, receiver or conservator of the Company for the following purposes, unless otherwise provided for in a separate Trust Agreement:

1. To reimburse the Company for the Reinsurer’s Obligations, the payment of which is due under the terms of this Contract and which has not been otherwise paid;

19

2. To make refund of any sum which is in excess of the actual amount required to pay the Reinsurer’s Obligations under this Contract, if so requested by the Reinsurer;

3. To fund an account with the Company for the Reinsurer’s Obligations.  Such cash deposit shall be held in an interest bearing account separate from the Company’s other assets, and interest thereon not in excess of the prime rate shall accrue to the benefit of the Reinsurer;

4. To pay the Reinsurer’s share of any other amounts the Company claims are due under this Contract.

In the event the amount drawn by the Company on any Letter of Credit is in excess of the actual amount required for subparagraphs 1 or 3, or in the case of subparagraph 4, the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.  All of the foregoing shall be applied without diminution because of insolvency on the part of the Company or the Reinsurer.

D. The issuing bank shall have no responsibility whatsoever in connection with the propriety of withdrawals made by the Company or the disposition of funds withdrawn, except to ensure that withdrawals are made only upon the order of properly authorized representatives of the Company.

E. At quarterly intervals and on an estimated basis 45 days prior to each December 31, or more frequently as agreed but never more frequently than quarterly, the Company shall prepare a specific statement of the Reinsurer’s Obligations, for the sole purpose of amending the Letter of Credit, in the following manner:

1. If the statement shows that the Reinsurer’s Obligations exceed the balance of credit as of the statement date, the Reinsurer shall, within 30 days after receipt of notice of such excess, secure delivery to the Company of an amendment to the Letter of Credit increasing the amount of credit by the amount of such difference.

2. If, however, the statement shows that the Reinsurer’s Obligations are less than the balance of credit as of the statement date, the Company shall, within 30 days after receipt of written request from the Reinsurer, release such excess credit by agreeing to secure an amendment to the Letter of Credit reducing the amount of credit available by the amount of such excess credit.

Article XXVII - Insolvency

A. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the company or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the company without diminution because of the insolvency of the company or because the liquidator, receiver, conservator or statutory successor of the company has failed to pay all or a portion of any claim.  It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the company shall give written notice to the Reinsurer of the pendency of a claim against the company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the company or its liquidator, receiver, conservator or statutory successor.  The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the Court, against the company as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the company solely as a result of the defense undertaken by the Reinsurer.

20

B. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the company.

C. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the company or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee of such reinsurance in the event of the insolvency of the company or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such policy obligations of the company as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the company to such payees.

Article XXVIII - Arbitration

A. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration.  One Arbiter shall be chosen by the Company, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Lloyd’s London Underwriters.  In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration.  If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the Umpire shall be appointed in accordance with the procedures of the American Arbitration Association.

B. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire.  The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law.  The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties.  Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

C. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Company to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

21

D. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration.  In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

E. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract, but notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the state in which the Company has its principal office.

Article XXIX - Service of Suit (BRMA 49C)

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities)

A. It is agreed that in the event the Reinsurer fails to pay any amount claimed to be due hereunder, the Reinsurer, at the request of the Company, will submit to the jurisdiction of a court of competent jurisdiction within the United States.  Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States.

B. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Company or any beneficiary hereunder arising out of this Contract.

Article XXX - Agency Agreement (BRMA 73A)

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies (subject to the provisions of the Insolvency Article) for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

Article XXXI - Governing Law (BRMA 71B)

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

22

Article XXXII- Intermediary (BRMA 23A)

Benfield Inc. is hereby recognized as the Intermediary negotiating this Contract for all business hereunder.  All communications (including but not limited to notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through Benfield Inc.  Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer.  Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

In Witness Whereof, the Company by its duly authorized representative has executed this Contract as of the date undermentioned at:

North Palm Beach, Florida, this ________ day of ___________________ in the year ________.

__________________________________________________________

AmCOMP Preferred Insurance Company

AmCOMP Assurance Corporation

any and all insurance companies which are now or hereafter come under

the same ownership or management as the AmCOMP Group

23

Schedule A

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

	First Excess	Second Excess
Company’s Retention	$10,000,000	$20,000,000
Reinsurer’s Per Occurrence Limit	$10,000,000	$10,000,000
Reinsurer’s Term Limit	$20,000,000	$20,000,000
Annual Minimum Premium	$344,000	$208,000
Premium Rate	0.185%	0.112%
Annual Deposit Premium	$430,000	$260,000
Quarterly Deposit Premium	$107,500	$65,000

The figures listed above for each excess layer shall apply to each Subscribing Reinsurer in the percentage share for that excess layer as expressed in its Interests and Liabilities Agreement attached hereto.

Schedule A

Nuclear Incident Exclusion Clause - Liability - Reinsurance (U.S.A.)

(Approved by Lloyd’s Underwriters’ Fire and Non-Marine Association)

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers or reinsurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operation of paragraph (1) of this Clause it is understood and agreed that for all purposes of this reinsurance all the original policies of the Reassured (new, renewal and replacement) of the classes specified in Clause II of this paragraph (2) from the time specified in Clause III in this paragraph (2) shall be deemed to include the following provision (specified as the Limited Exclusion Provision):

Limited Exclusion Provision.*

I. It is agreed that the policy does not apply under any liability coverage, to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability.

II. Family Automobile Policies (liability only), Special Automobile Policies (private passenger automobiles, liability only), Farmers Comprehensive Personal Liability Policies (liability only), Comprehensive Personal Liability Policies (liability only) or policies of a similar nature; and the liability portion of combination forms related to the four classes of policies stated above, such as the Comprehensive Dwelling Policy and the applicable types of Homeowners Policies.

III. The inception dates and thereafter of all original policies as described in II above, whether new, renewal or replacement, being policies which either

(a) become effective on or after 1st May, 1960, or

(b) become effective before that date and contain the Limited Exclusion Provision set out above;

provided this paragraph (2) shall not be applicable to Family Automobile Policies, Special Automobile Policies, or policies or combination policies of a similar nature, issued by the Reassured on New York risks, until 90 days following approval of the Limited Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(3) Except for those classes of policies specified in Clause II of paragraph (2) and without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that for all purposes of this reinsurance the original liability policies of the Reassured (new, renewal and replacement) affording the following coverages:

Owners, Landlords and Tenants Liability, Contractual Liability, Elevator Liability, Owners or Contractors (including railroad) Protective Liability, Manufacturers and Contractors Liability, Product Liability, Professional and Malpractice Liability, Storekeepers Liability, Garage Liability, Automobile Liability (including Massachusetts Motor Vehicle or Garage Liability)

shall be deemed to include, with respect to such coverages, from the time specified in Clause V of this paragraph (3), the following provision (specified as the Broad Exclusion Provision):

Broad Exclusion Provision.*

It is agreed that the policy does not apply:

I. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

(a) with respect to which an insured under the policy is also an insured under a nuclear energy liability policy issued by Nuclear Energy Liability Insurance Association, Mutual Atomic Energy Liability Underwriters or Nuclear Insurance Association of Canada, or would be an insured under any such policy but for its termination upon exhaustion of its limit of liability; or

(b) resulting from the hazardous properties of nuclear material and with respect to which (1) any person or organization is required to maintain financial protection pursuant to the Atomic Energy Act of 1954, or any law amendatory thereof, or (2) the insured is, or had this policy not been issued would be, entitled to indemnity from the United States of America, or any agency thereof, under any agreement entered into by the United States of America, or any agency thereof, with any person or organization.

Page 1 of 2

II. Under any Medical Payments Coverage, or under any Supplementary Payments Provision relating to

(immediate medical or surgical relief

(first aid,

to expenses incurred with respect to

(bodily injury, sickness, disease or death

(bodily injury

resulting from the hazardous properties of nuclear material and arising out of the operation of a nuclear facility by any person or organization.

III. Under any Liability Coverage to

(injury, sickness, disease, death or destruction

(bodily injury or property damage

resulting from the hazardous properties of nuclear material, if

(a) the nuclear material (1) is at any nuclear facility owned by, or operated by or on behalf of, an insured or (2) has been discharged or dispersed therefrom;

(b) the nuclear material is contained in spent fuel or waste at any time possessed, handled, used, processed, stored, transported or disposed of by or on behalf of an insured; or

(c) the

(injury, sickness, disease, death or destruction

(bodily injury or property damage

arises out of the furnishing by an insured of services, materials, parts or equipment in connection with the planning, construction, maintenance, operation or use of any nuclear facility, but if such facility is located within the United States of America, its territories, or possessions or Canada, this exclusion (c) applies only to

(injury to or destruction of property at such nuclear facility

(property damage to such nuclear facility and any property thereat.

IV. As used in this endorsement:

“hazardous properties” include radioactive, toxic or explosive properties; “nuclear material” means source material, special nuclear material or byproduct material; “source material”, “special nuclear material”, and “byproduct material” have the meanings given them in the Atomic Energy Act of 1954 or in any law amendatory thereof; “spent fuel” means any fuel element or fuel component, solid or liquid, which has been used or exposed to radiation in a nuclear reactor; “waste” means any waste material (1) containing byproduct material and (2) resulting from the operation by any person or organization of any nuclear facility included within the definition of nuclear facility under paragraph (a) or (b) thereof; “nuclear facility” means

(a) any nuclear reactor,

(b) any equipment or device designed or used for (1) separating the isotopes of uranium or plutonium, (2) processing or utilizing spent fuel, or (3) handling processing or packaging waste,

(c) any equipment or device used for the processing, fabricating or alloying of special nuclear material if at any time the total amount of such material in the custody of the insured at the premises where such equipment or device is located consists of or contains more than 25 grams of plutonium or uranium 233 or any combination thereof, or more than 250 grams of uranium 235,

(d) any structure, basin, excavation, premises or place prepared or used for the storage or disposal of waste, and includes the site on which any of the foregoing is located, all operations conducted on such site and all premises used for such operations; “nuclear reactor” means any apparatus designed or used to sustain nuclear fission in a self-supporting chain reaction or to contain a critical mass of fissionable material;

(With respect to injury to or destruction of property, the word “injury” or “destruction,”

(“property damage” includes all forms of radioactive contamination of property,

(includes all forms of radioactive contamination of property.

V. The inception dates and thereafter of all original policies affording coverages specified in this paragraph (3), whether new, renewal or replacement, being policies which become effective on or after 1st May, 1960, provided this paragraph (3) shall not be applicable to

(i) Garage and Automobile Policies issued by the Reassured on New York risks, or

(ii) statutory liability insurance required under Chapter 90, General Laws of Massachusetts, until 90 days following approval of the Broad Exclusion Provision by the Governmental Authority having jurisdiction thereof.

(4) Without in any way restricting the operation of paragraph (1) of this Clause, it is understood and agreed that paragraphs (2) and (3) above are not applicable to original liability policies of the Reassured in Canada and that with respect to such policies this Clause shall be deemed to include the Nuclear Energy Liability Exclusion Provisions adopted by the Canadian Underwriters’ Association or the Independent Insurance Conference of Canada.

*NOTE. The words printed in italics in the Limited Exclusion Provision and in the Broad Exclusion Provision shall apply only in relation to original liability policies which include a Limited Exclusion Provision or a Broad Exclusion Provision containing those words.

Page 2 of 2

Nuclear Incident Exclusion Clause Reinsurance - No. 4

(1) This reinsurance does not cover any loss or liability accruing to the Reassured as a member of, or subscriber to, any association of insurers formed for the purpose of covering nuclear energy risks or as a direct or indirect reinsurer of any such member, subscriber or association.

(2) Without in any way restricting the operations of Nuclear Incident Exclusion Clause No. 1B - Liability, No. 2 - Physical Damage, No. 3 - Boiler and Machinery and paragraph (1) of this clause, it is understood and agreed that for all purposes as respects the reinsurance assumed by the Reinsurer from the Reassured, all original insurance policies or contracts of the Reassured (new, renewal and replacement) shall be deemed to include the applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s) in effect at the time and any subsequent revisions thereto as agreed upon and approved by the Insurance Industry and/or a qualified Advisory or Rating Bureau.

Pollution Exclusion Clause - General Liability - Reinsurance

A. This reinsurance excludes all loss and/or liability accruing to the reinsured company as a result of:

1. bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

a. at or from premises owned, rented or occupied by a named insured;

b. at or from any site or location used by or for a named insured or others for the handling, storage, disposal, processing or treatment of waste;

c. which are at any time transported, handled, stored, treated, disposed of, or processed as waste by or for a named insured or any person or organization for whom a named insured may be legally responsible; or

d. at or from any site or location on which a named insured or any contractors or subcontractors working directly or indirectly on behalf of a named insured are performing operations:

(i) if the pollutants are brought on or to the site or location in connection with such operations; or

(ii) if the operations are to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize the pollutants;

2. any governmental direction or request that a named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.

B. Subparagraphs A(1)(a) and A(1)(d)(i) above do not apply to bodily injury or property damage caused by heat, smoke or fumes from a hostile fire.

C. “Hostile fire” means a fire which becomes uncontrollable or breaks out from where it was intended to be.

D. “Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.  Waste includes material to be recycled, reconditioned or reclaimed.

War Risk Exclusion Clause (Reinsurance)

As regards interests which at time of loss or damage are on shore, no liability shall attach hereto in respect of any loss or damage which is occasioned by war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority.

Nevertheless, this clause shall not be construed to apply to loss or damage occasioned by riots, strikes, civil commotion, vandalism or malicious damage.

Interests and Liabilities Agreement

of

Arch Reinsurance Company

A Nebraska Corporation

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                               0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           15.0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Morristown, New Jersey, this _______ day of _____________________ in the year ________.

__________________________________________________________

Arch Reinsurance Company

Interests and Liabilities Agreement

of

Max Bermuda Ltd.

Hamilton, Bermuda

 (hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           15.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                                 0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Hamilton, Bermuda, this _______ day of __________________________ in the year ________.

__________________________________________________________

Max Bermuda Ltd.

Interests and Liabilities Agreement

of

Tokio Millennium Re Ltd.

Hamilton, Bermuda

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           10.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           30.0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Hamilton, Bermuda, this _______ day of __________________________ in the year ________.

__________________________________________________________

Tokio Millennium Re Ltd.

Interests and Liabilities Agreement

of

Chaucer Syndicates Limited 1084 & 1301

London, England

through

Chaucer Underwriting A/S

Copenhagen, Denmark

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           15.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           17.5%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Copenhagen, Denmark, this ________ day of _____________________ in the year ________.

__________________________________________________________

Chaucer Underwriting A/S

(for and on behalf of Chaucer Syndicates Limited 1084 & 1301)

Interests and Liabilities Agreement

of

Imagine Syndicate 1400

London, England

through

Imagine Underwriting ApS

Copenhagen, Denmark

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           20.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           17.5%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Copenhagen, Denmark, this ________ day of _____________________ in the year ________.

__________________________________________________________

Imagine Underwriting ApS

(for and on behalf of Imagine Syndicate 1400)

Interests and Liabilities Agreement

of

PARIS RE

Paris, France

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           10.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           5.0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

The Subscribing Reinsurer’s share in the attached Contract shall be separate and apart from the shares of the other reinsurers, and shall not be joint with the shares of the other reinsurers, it being understood that the Subscribing Reinsurer shall in no event participate in the interests and liabilities of the other reinsurers.

In Witness Whereof, the Subscribing Reinsurer by its duly authorized representative has executed this Agreement as of the date undermentioned at:

Paris, France, this _______ day of ______________________________ in the year ________.

__________________________________________________________

PARIS RE

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd’s

shown in the Signing Page(s) attached hereto

 (hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           20.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           10.0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Signing Page

attaching to and forming part of the

Interests and Liabilities Agreement

of

Certain Underwriting Members of Lloyd’s

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company, et al.

(Re)Insurer’s Liability Clause - LMA3333

(Re)insurer’s liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract.  A (re)insurer is liable only for the proportion of liability it has underwritten.  A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer.  Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp.  This is subject always to the provision concerning “signing” below.

In the case of a Lloyd’s syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer.  Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together).  The liability of each member of the syndicate is several and not joint with other members.  A member is liable only for that member’s proportion.  A member is not jointly liable for any other member’s proportion.  Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.  The business address of each member is Lloyd’s, One Lime Street, London EC3M 7HA.  The identity of each member of a Lloyd’s syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd’s, at the above address.

Proportion of liability

Unless there is “signing” (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its “written line”.

Where this contract permits, written lines, or certain written lines, may be adjusted (“signed”).  In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together).  A definitive proportion (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of a Lloyd’s syndicate taken together) is referred to as a “signed line”.  The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to “this contract” in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.

Interests and Liabilities Agreement

of

Certain Insurance Companies

shown in the Signing Page(s) attached hereto

(hereinafter referred to as the “Subscribing Reinsurer”)

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

The Subscribing Reinsurer hereby accepts the following percentage share(s) in the interests and liabilities of the “Reinsurer” as set forth in the attached Contract captioned above:

                           10.0%of the First Excess Catastrophe Workers’ Compensation Reinsurance

                           5.0%of the Second Excess Catastrophe Workers’ Compensation Reinsurance

This Agreement shall become effective at 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2008, and shall continue in force until 12:01 a.m., Local Standard Time where the occurrence commences, January 1, 2009, unless earlier terminated in accordance with the provisions of the attached Contract.

In any action, suit or proceeding to enforce the Subscribing Reinsurer’s obligations under the attached Contract, service of process may be made upon Mendes & Mount, 750 Seventh Avenue, New York, New York  10019.

Signed for and on behalf of the Subscribing Reinsurer in the Signing Page(s) attached hereto.

Signing Page

attaching to and forming part of the

Interests and Liabilities Agreement

of

Certain Insurance Companies

with respect to the

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to and duly executed by

AmCOMP Preferred Insurance Company, et al.

(Re)Insurer’s Liability Clause - LMA3333

(Re)insurer’s liability several not joint

The liability of a (re)insurer under this contract is several and not joint with other (re)insurers party to this contract.  A (re)insurer is liable only for the proportion of liability it has underwritten.  A (re)insurer is not jointly liable for the proportion of liability underwritten by any other (re)insurer.  Nor is a (re)insurer otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.

The proportion of liability under this contract underwritten by a (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp.  This is subject always to the provision concerning “signing” below.

In the case of a Lloyd’s syndicate, each member of the syndicate (rather than the syndicate itself) is a (re)insurer.  Each member has underwritten a proportion of the total shown for the syndicate (that total itself being the total of the proportions underwritten by all the members of the syndicate taken together).  The liability of each member of the syndicate is several and not joint with other members.  A member is liable only for that member’s proportion.  A member is not jointly liable for any other member’s proportion.  Nor is any member otherwise responsible for any liability of any other (re)insurer that may underwrite this contract.  The business address of each member is Lloyd’s, One Lime Street, London EC3M 7HA.  The identity of each member of a Lloyd’s syndicate and their respective proportion may be obtained by writing to Market Services, Lloyd’s, at the above address.

Proportion of liability

Unless there is “signing” (see below), the proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together) is shown next to its stamp and is referred to as its “written line”.

Where this contract permits, written lines, or certain written lines, may be adjusted (“signed”).  In that case a schedule is to be appended to this contract to show the definitive proportion of liability under this contract underwritten by each (re)insurer (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of the syndicate taken together).  A definitive proportion (or, in the case of a Lloyd’s syndicate, the total of the proportions underwritten by all the members of a Lloyd’s syndicate taken together) is referred to as a “signed line”.  The signed lines shown in the schedule will prevail over the written lines unless a proven error in calculation has occurred.

Although reference is made at various points in this clause to “this contract” in the singular, where the circumstances so require this should be read as a reference to contracts in the plural.

Catastrophe Workers’ Compensation

Reinsurance Contract

Effective:  January 1, 2008

issued to

AmCOMP Preferred Insurance Company

North Palm Beach, Florida

AmCOMP Assurance Corporation

North Palm Beach, Florida

and

any and all insurance companies which are now or

hereafter come under the same ownership or management as the

AmCOMP Group

North Palm Beach, Florida

First Excess Catastrophe Workers’ Compensation Reinsurance

Reinsurers	Participations
Max Bermuda Ltd.		15.0	%
Tokio Millennium Re Ltd.		10.0
Through Benfield Limited (Placement Only)
Imagine Underwriting ApS
(for Imagine Syndicate 1400)		20.0
PARIS RE		10.0
Through Benfield Limited
Lloyd’s Underwriters and Companies
Per Signing Page(s)		30.0
Chaucer Underwriting A/S
(for and on behalf of Chaucer Syndicates Limited 1084 & 1301)		15.0
Total		100.0	%

Second Excess Catastrophe Workers’ Compensation Reinsurance

Reinsurers	Participations
Arch Reinsurance Company		15.0	%
Tokio Millennium Re Ltd.		30.0
Through Benfield Limited (Placement Only)
Imagine Underwriting ApS
(for Imagine Syndicate 1400)		17.5
PARIS RE		5.0
Through Benfield Limited
Lloyd’s Underwriters and Companies
Per Signing Page(s)		15.0
Chaucer Underwriting A/S
(for and on behalf of Chaucer Syndicates Limited 1084 & 1301)		17.5
Total		100.0	%

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-138127 on Form S-8 of our report dated April 2, 2007, relating to the financial statements and financial statement schedules of AmCOMP Incorporated appearing in this Annual Report on Form 10-K of AmCOMP Incorporated for the year ended December 31, 2007.

/s/ DELOITTE & TOUCHE LLP

Fort Lauderdale, Florida

March 5, 2008

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-138127 on Form S-8 of our report dated February 28, 2008, except for Note 19, as to which the date is March 4, 2008, relating to the financial statements, financial statement schedules and internal control over financial reporting of AmCOMP Incorporated appearing in this Annual Report on Form 10-K of AmCOMP Incorporated for the year ended December 31, 2007.

/s/ JOHNSON LAMBERT & CO., LLP

JACKSONVILLE, FLORIDA

February 28, 2008, except for Note 19,

as to which the date is March 4, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Fred R. Lowe, certify that:

1. I have reviewed this annual report on Form 10-K of AmCOMP Incorporated for the year ended December 31, 2007;

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)) 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) 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

c) 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 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):

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.

/s/  Fred R. Lowe
Name:	Fred R. Lowe
Title:	Principal Executive Officer

March 5, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kumar Gursahaney, certify that:

1. I have reviewed this annual report on Form 10-K of AmCOMP Incorporated for the year ended December 31, 2007;

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)) 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) 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

c) 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 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):

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.

/s/ Kumar Gursahaney
Name:	Kumar Gursahaney
Title:	Principal Financial Officer

March 5, 2008

EX-32.1

Exhibit 32.1

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AmCOMP Incorporated, (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 “Report”), I, Fred R. Lowe, Principal 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, to my knowledge:

1. The 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 report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 5, 2008	/s/   Fred R. Lowe
	Name:	Fred R. Lowe
	Title:	Principal Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of AmCOMP Incorporated, (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 “Report”), I, Kumar Gursahaney, Principal 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, to my knowledge:

1. The 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 report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 5, 2008	/s/ Kumar Gursahaney
	Name:	Kumar Gursahaney
	Title:	Principal Financial Officer