10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

OR

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

For the transition period from              to             

No. 000-50926

(Commission File Number)

FREMONT MICHIGAN INSURACORP, INC.

(Exact name of Registrant as specified in its charter)

Michigan	42-1609947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
933 E. Main St., Fremont, Michigan	49412
(Address of principal executive offices)	(Zip Code)

(231) 924-0300

(Registrant’s telephone number, including area code)

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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     Yes  ¨    No  x

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

	Number of Shares Outstanding as of August 9, 2010
COMMON STOCK (No Par Value)	1,768,682
(Title of Class)	(Outstanding Shares)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Reserved	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		33

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

June 30, 2010 and December 31, 2009

	June 30, 2010		December 31, 2009
Assets
Investments:
Fixed maturities available for sale, at fair value	$	56,761,140	$	56,483,580
Equity securities available for sale, at fair value		11,579,174		11,183,580
Mortgage loans on real estate from related parties		235,693		239,303
Total investments		68,576,007		67,906,463
Cash and cash equivalents		11,849,624		7,063,679
Premiums due from policyholders, net		11,476,149		10,087,998
Receivable from sale of investments		70,607		—
Amounts due from reinsurers		10,346,145		7,859,452
Prepaid reinsurance premiums		2,355,241		1,856,343
Accrued investment income		550,378		600,648
Deferred policy acquisition costs		4,142,997		3,913,551
Deferred federal income taxes		3,361,703		3,155,625
Property and equipment, net of accumulated depreciation		3,547,566		2,787,134
Other assets		33,464		33,175
	$	116,309,881	$	105,264,068
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	26,292,580	$	21,331,243
Unearned premiums		30,779,485		28,886,128
Reinsurance funds withheld and premiums ceded payable		69,440		96,697
Accrued expenses and other liabilities		11,930,695		8,905,213
Total liabilities		69,072,200		59,219,281
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, authorized 4,500,000 shares, no shares issued and outstanding		—		—
Class A common stock, no par value, authorized 5,000,000 shares, 1,765,908 and 1,749,032 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively		—		—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—		—
Additional paid-in capital		9,468,789		9,037,405
Retained earnings		37,314,717		36,332,648
Accumulated other comprehensive income		454,175		674,734
Total stockholders’ equity		47,237,681		46,044,787
Total liabilities and stockholders’ equity	$	116,309,881	$	105,264,068

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

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Revenues:
Net premiums earned	$	14,564,629	$	13,197,608	$	28,548,417	$	26,018,489
Net investment income		413,939		438,980		854,150		940,165
Net realized gains on investments		862,207		14,833		1,222,008		211,494
Other income, net		154,305		179,185		311,722		323,351
Total revenues		15,995,080		13,830,606		30,936,297		27,493,499
Expenses:
Losses and loss adjustment expenses, net		10,953,852		8,773,377		19,481,732		17,994,570
Policy acquisition and other underwriting expenses		4,869,318		4,258,906		9,792,464		8,370,580
Total expenses		15,823,170		13,032,283		29,274,196		26,365,150
Income before federal income tax expense		171,910		798,323		1,662,101		1,128,349
Federal income tax expense		11,747		213,616		472,333		265,534
Net income	$	160,163	$	584,707	$	1,189,768	$	862,815
Earnings per share
Basic	$	.09	$	.33	$	.68	$	.49
Diluted	$	.09	$	.33	$	.66	$	.48

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

4

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2010

	Common Stock Class A (Number of Shares)		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2009	1,749,032		$	9,037,405		$	36,332,648		$	674,734		$	46,044,787
Comprehensive income:
Net income							1,189,768						1,189,768
Net unrealized losses on investments, net of tax										(193,102	)		(193,102	)
Amortization of prior service credit, net of tax										(28,275	)		(28,275	)
Amortization of net actuarial loss, net of tax										818			818
Total comprehensive income													969,209
Common stock issued	15,616			336,190									336,190
Stock options exercised	4,350			21,739									21,739
Tax benefit from stock options exercised				26,070									26,070
Common stock repurchased	(3,090	)		(14,986	)		(66,682	)					(81,668	)
Cash dividend							(141,017	)					(141,017	)
Stock-based compensation				62,371									62,371
Balance, June 30, 2010	1,765,908		$	9,468,789		$	37,314,717		$	454,175		$	47,237,681

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

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30, 2010 and 2009

	2010			2009
Cash flows from operating activities:
Net income	$	1,189,768		$	862,815
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		440,586			450,187
Deferred federal income taxes		(92,456	)		71,388
Stock based compensation expense		62,371			62,264
Net realized gains on investments		(1,222,008	)		(211,494	)
Net amortization of premiums on investments		275,943			160,648
Excess tax benefit from stock options exercised		(26,070	)		(2,319	)
Changes in assets and liabilities:
Premiums due from policyholders		(1,388,151	)		(673,246	)
Amounts due from reinsurers		(2,486,693	)		(634,785	)
Prepaid reinsurance premiums		(498,898	)		(138,955	)
Accrued investment income		50,270			17,469
Deferred policy acquisition costs		(229,446	)		(89,230	)
Other assets		(289	)		24,938
Losses and loss adjustment expenses		4,961,337			801,338
Unearned premiums		1,893,357			396,111
Reinsurance balances payable		(27,257	)		(103,471	)
Accrued expenses and other liabilities		(278,379	)		2,948,600
Net cash provided by operating activities		2,623,985			3,942,258
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		27,170,772			13,288,933
Proceeds from sales of equity investments		6,951,113			156,377
Purchases of fixed maturity investments		(26,259,081	)		(10,053,866	)
Purchases of equity investments		(7,882,473	)		(2,946,633	)
Increase (decrease) in receivable from investments		3,217,723			(17,886	)
Repayment of mortgage loan on real estate from related party		3,610			4,207
Purchase of property and equipment, net		(1,201,018	)		(505,487	)
Net cash provided by (used in) investing activities		2,000,646			(74,355	)
Cash flows from financing activities:
Proceeds from issuance of common stock		357,929			237,610
Shares repurchases of common stock		(81,668	)		(75,518	)
Dividends paid to stockholders		(141,017	)		(105,422	)
Tax benefit from exercised stock options		26,070			2,319
Net cash provided by financing activities		161,314			58,989
Net increase in cash and cash equivalents		4,785,945			3,926,892
Cash and cash equivalents, beginning of period		7,063,679			6,576,564
Cash and cash equivalents, end of period	$	11,849,624		$	10,503,456

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

6

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Fremont Michigan InsuraCorp, Inc. and subsidiary (collectively, the “Company”) includes Fremont Michigan InsuraCorp, Inc. (“FMIC”) and its wholly owned subsidiary Fremont Insurance Company (“FIC”). FIC is a Michigan licensed property and casualty insurance carrier operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents.

The accompanying unaudited consolidated financial statements which include the accounts of FMIC and its wholly-owned subsidiary, FIC, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany transactions have been eliminated.

The accompanying unaudited consolidated financial statements for the interim periods included herein are unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The December 31, 2009 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

Certain 2009 amounts have been reclassified from the prior year financial statements to conform to the 2010 presentation.

2. New Accounting Standards

In June 2009, a new accounting standard was issued related to the accounting for transfers of financial assets, which updates accounting for securitizations and special-purpose entities. The new accounting standard is a revision of previously issued accounting standards related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, and will require additional information regarding financial asset transfers, including securitization transactions, and the presence of continuing exposure around the risks related to transferred financial assets. In addition, the new accounting standard removes the concept of a qualifying special-purpose entity and changes the requirements for derecognizing financial assets. The new accounting standard was effective for the Company on January 1, 2010. The implementation of this new accounting standard did not have a significant impact on our financial statements.

In June 2009, new consolidation guidance was issued which 1) replaces the quantitative-based risks and rewards calculation for determining whether an enterprise is the primary beneficiary in a variable interest entity with an approach that is primarily qualitative, 2) requires ongoing assessments whether an enterprise is the primary beneficiary of a variable interest entity, and 3) requires additional disclosure about an enterprise’s involvement in variable interest entities. This guidance was effective for the Company on January 1, 2010. The implementation of this new guidance did not have an impact on our financial statements.

In January 2010, an update to the Accounting Standards Codification (ASC) was issued related to fair value measurements and disclosures. This ASC update provides for additional disclosure requirements to improve the transparency and comparability of fair value information in financial reporting. Specifically, the new guidance requires separate disclosure of the amounts of significant transfers in and out of Levels 1 and 2, as well as the reasons for the transfers, and separate disclosure for the purchases, sales, issuances and settlement activity in Level 3. In addition, this ASC update requires fair value measurement disclosure for each class of assets and liabilities, and disclosures about the input and valuation techniques used to measure fair value for both recurring and nonrecurring fair value measurements in Levels 2 and 3. The new disclosures and clarifications of existing disclosures were adopted on January 1, 2010, except for the requirement to provide Level 3 activity detail which will become effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Early adoption is permitted. These amendments do not require disclosures for earlier periods presented for comparative purposes at initial adoption. The updated disclosures are included in note 4 to the consolidated financial statements.

3. Investments

The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at June 30, 2010 and December 31, 2009 are as follows:

7

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	June 30, 2010
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,833,699	$	107,734	$	—	$	5,941,433
States and political subdivisions		19,618,049		726,746		6,533		20,338,262
Corporate securities		15,253,969		358,757		26,772		15,585,954
Mortgage-backed securities		14,583,703		311,796		8		14,895,491
		55,289,420		1,505,033		33,313		56,761,140
Equity securities		13,185,766		299,662		1,906,254		11,579,174
Total	$	68,475,186	$	1,804,695	$	1,939,567	$	68,340,314
	December 31, 2009
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,670,813	$	30,533	$	5,136	$	5,696,210
States and political subdivisions		23,790,222		473,278		76,596		24,186,904
Corporate securities		12,514,810		198,936		26,830		12,686,916
Mortgage-backed securities		13,846,261		154,329		87,040		13,913,550
		55,822,106		857,076		195,602		56,483,580
Equity securities		11,687,346		829,461		1,333,227		11,183,580
Total	$	67,509,452	$	1,686,537	$	1,528,829	$	67,667,160

The cost or amortized cost and estimated fair value of fixed maturities at June 30, 2010, by contractual maturity, are shown below. Expected maturities on certain corporate and mortgage-backed investments may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,259,660	$	2,279,692
Due after one year through five years		17,581,066		17,958,639
Due after five years through ten years		18,987,491		19,743,868
Due after ten years		1,877,499		1,883,450
Mortgage-backed securities		14,583,704		14,895,491
	$	55,289,420	$	56,761,140

Net realized gains (losses) on investments for the three and six months ended June 30 are as follows:

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2010		2009			2010			2009
Gross realized investment gains:
Fixed maturities	$	367,467	$	15,198		$	654,948		$	269,023
Equity securities		494,740		311			567,500			311
		862,207		15,509			1,222,448			269,334
Gross realized investment losses:
Fixed maturities		—		—			—			—
Equity securities		—		(676	)		(440	)		(57,840	)
		—		(676	)		(440	)		(57,840	)
Net realized gains on investments	$	862,207	$	14,833		$	1,222,008		$	211,494

Evaluating Investments for Other-than-Temporary Impairments

The Company reviews the status and market value changes of its investment portfolio on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. The following tables are used as part of our impairment analysis.

The tables below show the total value of securities that were in an unrealized loss position as of June 30, 2010 and December 31, 2009 including the length of time they have been in an unrealized loss position. As of June 30, 2010 and December 31, 2009, unrealized losses, as shown in the following tables, were 2.4% and 2.0%, respectively, of total invested assets including cash and cash equivalents.

	June 30, 2010
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	—	$	—	$	—	$	—	$	—	$	—
States and political subdivisions		1,653,705		6,533		—		—		1,653,705		6,533
Corporate securities		2,646,315		26,772		—		—		2,646,315		26,772
Mortgage-backed securities		10,466		8		—		—		10,466		8
		4,310,486		33,313		—		—		4,310,486		33,313
Equity securities		3,552,427		359,548		4,304,787		1,546,706		7,857,214		1,906,254
Total	$	7,862,913	$	392,861	$	4,304,787	$	1,546,706	$	12,167,700	$	1,939,567

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	December 31, 2009
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	2,960,523	$	5,136	$	—	$	—	$	2,960,523	$	5,136
States and political subdivisions		2,630,506		57,311		480,715		19,285		3,111,221		76,596
Corporate securities		3,689,734		26,830		—		—		3,689,734		26,830
Mortgage-backed securities		5,249,649		36,993		1,770,809		50,047		7,020,458		87,040
		14,530,412		126,270		2,251,524		69,332		16,781,936		195,602
Equity securities		103,878		5,771		6,197,433		1,327,456		6,301,311		1,333,227
Total	$	14,634,290	$	132,041	$	8,448,957	$	1,396,788	$	23,083,247	$	1,528,829

The following table shows the composition of the fixed maturities securities in unrealized loss positions at June 30, 2010 by the National Association of Insurance Commissioners (NAIC) rating and the generally equivalent Standard & Poor’s (S&P) and Moody’s ratings. The vast majority of the securities are rated by S&P and/or Moody’s.

NAIC Rating	Equivalent S&P Rating	Equivalent Moody's Rating	Book Value		Fair Value		Unrealized Loss		Percent to Total
1	AAA/AA/A	Aaa/Aa/A	$	4,343,799	$	4,310,486	$	33,313	100.0	%
2	BBB	Baa		—		—		—	—
3	BB	Ba		—		—		—	—
4	B	B		—		—		—	—
5	CCC or lower	Caa or lower		—		—		—	—
6				—		—		—	—
			$	4,343,799	$	4,310,486	$	33,313	100.0	%

In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities market conditions, and analyst expectations, to reach its conclusions.

Current accounting standards require that any credit-related impairment related to fixed maturity securities that we do not plan to sell and for which we are not more likely than not to be required to sell is recognized in net income, with the non-credit related impairment recognized in comprehensive income. Based on our analysis, our fixed maturity portfolio is of a high credit quality and we believe we will recover our amortized cost basis of our fixed maturity securities. The fixed maturity unrealized losses can primarily be attributed to changes in interest rates and corresponding spread widening as opposed to fundamental changes in the credit quality of the issuers of the securities. We continually monitor the credit quality of our fixed maturity investments to gauge the likelihood of principal and interest being collected.

In reviewing its equity securities, which include common stock and mutual funds, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions. In addition to analyzing each individual security that has a fair value below cost, the Company also considers its intent and ability to hold a security until its fair value is equal to or greater than its cost.

As of June 30, 2010, the portfolio included 9 fixed maturity securities and 149 equity securities in an unrealized loss position for less than 12 months and 11 equity securities in an unrealized loss position for more than 12 months. Of the fixed maturity securities, all 9

10

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

were trading above 95% of amortized cost. All of the fixed maturity securities in an unrealized loss position and assigned a rating by a commercial credit rating agency are rated investment grade securities.

As of June 30, 2010, the investment portfolio included 160 equity securities in an unrealized loss position. Of these 160 equity securities, 9 were trading below 75% of amortized cost, 30 were trading between 75% and 85% of amortized cost, 84 were trading between 86% and 95% of amortized cost and the remaining 37 were trading above 95% of amortized cost.

As of December 31, 2009, the portfolio included 23 fixed maturity securities and 7 equity securities in an unrealized loss position for less than 12 months and 4 fixed maturity securities and 14 equity securities in an unrealized loss position for more than 12 months. Of the fixed maturity securities, all twenty-seven were trading above 95% of amortized cost. All of the fixed maturity securities in an unrealized loss position and assigned a rating by a commercial credit rating agency are rated investment grade securities.

As of December 31, 2009, the investment portfolio included 21 equity securities in an unrealized loss position. Of these twenty-one equity securities, 2 were trading under 75% of amortized cost, 7 were trading between 75% and 85% of amortized cost, 8 were trading between 86% and 95% of amortized cost and the remaining 4 were trading above 95% of amortized cost.

While all of these securities are monitored for potential impairment, the Company’s experience indicates that they generally do not present as great a risk of impairment, as fair value often recovers over time. The equity securities have generally been adversely affected by the downturn in the financial markets and overall economic conditions. Management believes that the analysis of each of these securities, in addition to the fact that the Company has both the intent and ability to hold these securities until their recovery, supports our view that these securities were not other-than-temporarily impaired.

4. Fair Value Measurements

Investments

Our available-for-sale investment portfolio consists of fixed maturity and equity securities, and is recorded at fair value in the accompanying consolidated balance sheets. The change in the fair value of these investments, unless deemed to be other than temporarily impaired, is recorded as a component of other comprehensive income.

Accounting standards provide a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based on our assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1

Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of fixed maturity and equity securities included in the Level 1 category were based on quoted prices that are readily and regularly available in an active market. The Level 1 category includes publicly traded equity securities and U.S. Government Treasury and Agency securities.

Level 2

Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of fixed maturity securities in the Level 2 category were based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information. The independent pricing service also monitors market indicators, industry and economic events. For broker-quoted only securities, quotes are obtained from market makers or broker-dealers that the Company recognizes to be market participants. The Level 2 category includes corporate bonds, municipal bonds, and mortgage-backed securities.

Level 3

Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Company did not hold any available-for-sale investments on the measurement date that are classified in the Level 3 category.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The following tables present our available-for-sale investments measured at fair value on a recurring basis as of June 30, 2010 and December 31, 2009 classified by the valuation hierarchy (as discussed above):

	June 30, 2010
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,941,433	$	1,447,641	$	4,493,792	$	—
States and political subdivisions		20,338,262		—		20,338,262		—
Corporate securities		15,585,954		—		15,585,954		—
Mortgage-backed securities		14,895,491		—		14,895,491		—
		56,761,140		1,447,641		55,313,499		—
Equity Securities		11,579,174		11,579,174		—		—
Total	$	68,340,314	$	13,026,815	$	55,313,499	$	—
	December 31, 2009
			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	5,696,210	$	1,632,250	$	4,063,960	$	—
States and political subdivisions		24,186,904		—		24,186,904		—
Corporate securities		12,686,916		—		12,686,916		—
Mortgage-backed securities		13,913,550		—		13,913,550		—
		56,483,580		1,632,250		54,851,330		—
Equity Securities		11,183,580		11,183,580		—		—
Total	$	67,667,160	$	12,815,830	$	54,851,330	$	—

5. Comprehensive Income or Loss

The Company’s comprehensive income (loss) for the three and six months ended June 30 is as follows:

12

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Net income	$	160,163		$	584,707		$	1,189,768		$	862,815
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments		(34,157	)		984,326			613,423			986,891
Reclassification adjustment for realized (gain) loss on investments included in net income		(569,057	)		(9,790	)		(806,525	)		(139,584	)
Amortization of prior service credit		(14,139	)		(14,137	)		(28,275	)		(28,276	)
Amortization of net actuarial loss		409			169			818			338
Other comprehensive income (loss), net of tax		(616,944	)		960,568			(220,559	)		819,369
Comprehensive (loss) income	$	(456,781	)	$	1,545,275		$	969,209		$	1,682,184

6. Earnings per Share

Basic earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding. Diluted earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding and the weighted-average dilutive share equivalents outstanding. The computation of basic and diluted earnings per share for the three and six month periods ended June 30 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2010		2009		2010		2009
Numerator for basic and diluted earnings per share:
Net income	$	160,163	$	584,707	$	1,189,768	$	862,815
Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,761,387		1,758,400		1,756,861		1,751,505
Effect of dilutive stock options		41,467		34,929		42,808		34,494
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,802,854		1,793,329		1,799,669		1,785,999
Basic earnings per share	$	0.09	$	0.33	$	0.68	$	0.49
Diluted earnings per share	$	0.09	$	0.33	$	0.66	$	0.48

7. Segment Information

The Company defines its operations as property and casualty insurance operations. The Company writes four major insurance lines exclusively in the State of Michigan: Personal Lines, Commercial Lines, Farm and Marine. The separate financial information of these four major insurance lines is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer.

The Company evaluates product line profitability based on underwriting gain (loss). Certain expenses are allocated based on measurements including premiums, incurred losses or other departmental employee data. Underwriting gain (loss) by product line would change if different methods were applied.

The Company does not allocate assets, net investment income, net realized gains on investments or other income to its product lines. In addition, the Company does not separately identify depreciation expense related to the building by product line as such disclosure would be impracticable.

Segment data for the three and six months ended June 30 are as follows:

13

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenues:
Net premiums earned:
Personal lines	$	10,793,111		$	9,753,637		$	21,166,112		$	19,105,019
Commercial lines		2,044,596			1,721,143			3,984,990			3,496,729
Farm		1,243,485			1,248,223			2,432,562			2,471,326
Marine		483,437			474,605			964,753			945,415
Total net premiums earned		14,564,629			13,197,608			28,548,417			26,018,489
Expenses:
Loss and loss adjustment expenses:
Personal lines		8,447,945			6,500,129			15,561,645			13,412,117
Commercial lines		1,279,716			1,294,219			2,320,053			2,407,929
Farm		874,530			762,311			1,197,662			1,790,692
Marine		351,661			216,718			402,372			383,832
Total loss and loss adjustment expenses		10,953,852			8,773,377			19,481,732			17,994,570
Policy acquisition and other underwriting expenses:
Personal lines		3,262,318			2,582,172			6,533,090			5,463,824
Commercial lines		992,838			1,001,023			2,053,531			1,652,624
Farm		441,736			428,916			890,058			868,671
Marine		172,426			246,795			315,785			385,461
Total policy acquisition and other underwriting expenses		4,869,318			4,258,906			9,792,464			8,370,580
Underwriting gain (loss):
Personal lines		(917,152	)		671,336			(928,623	)		229,078
Commercial lines		(227,958	)		(574,099	)		(388,594	)		(563,824	)
Farm		(72,781	)		56,996			344,842			(188,037	)
Marine		(40,650	)		11,092			246,596			176,122
Total underwriting gain (loss)		(1,258,541	)		165,325			(725,779	)		(346,661	)
Net investment income		413,939			438,980			854,150			940,165
Net realized gains on investments		862,207			14,833			1,222,008			211,494
Other income, net		154,305			179,185			311,722			323,351
Income before federal income taxes	$	171,910		$	798,323		$	1,662,101		$	1,128,349

8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following:

	June 30, 2010		December  31, 2009
Commissions payable	$	2,836,450	$	3,062,449
Advance premiums	$	1,104,308	$	734,618
Accrued salaries & employee benefits		760,709		1,114,020
Accumulated benefit obligation		1,804,442		1,819,308
Payable from investment purchases		3,288,662		13,002
Other		2,136,124		2,161,816
	$	11,930,695	$	8,905,213

9. Other Postretirement Plan

14

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The Company provides certain postretirement health care benefits for retired employees. The components of the net periodic benefit cost for the three and six months ended June 30 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Components of net periodic benefit cost:
Service cost	$	—		$	1,944		$	—		$	3,890
Interest cost		25,354			26,285			50,706			52,570
Amortization of unrecognized prior service credit		(21,421	)		(21,420	)		(42,841	)		(42,841	)
Amortization of unrecognized net actuarial loss		620			253			1,240			507
Net periodic benefit cost	$	4,553		$	7,062		$	9,105		$	14,126

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the six months ended June 30, 2010 the Company has made contributions to the plan of approximately $78,000 which is the total contribution that the Company expects to contribute to the plan in 2010 to cover anticipated benefit payments.

10. Reinsurance

The effect of reinsurance on premiums written and earned and losses and LAE incurred was as follows:

	Three Months Ended
	June 30, 2010						June 30, 2009
	Written			Earned			Written			Earned
Direct	$	20,246,988		$	17,553,769		$	17,303,818		$	15,903,886
Assumed		67,190			49,588			46,322			35,701
Ceded		(3,275,081	)		(3,038,728	)		(2,739,919	)		(2,741,979	)
Net premiums	$	17,039,097		$	14,564,629		$	14,610,221		$	13,197,608
	Six Months Ended
	June 30, 2010						June 30, 2009
	Written			Earned			Written			Earned
Direct	$	36,333,570		$	34,454,723		$	31,719,502		$	31,331,476
Assumed		80,630			66,119			60,860			52,774
Ceded		(6,375,744	)		(5,972,425	)		(5,427,327	)		(5,365,761	)
Net premiums	$	30,038,456		$	28,548,417		$	26,353,035		$	26,018,489
	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Loss and LAE incurred	$	12,197,514		$	9,253,760		$	23,662,511		$	20,294,117
Reinsurance recoveries		(1,243,662	)		(480,383	)		(4,180,779	)		(2,299,547	)
Net loss and LAE incurred	$	10,953,852		$	8,773,377		$	19,481,732		$	17,994,570

11. Federal Income Taxes

The provision for income taxes for the three and six months ended June 30 consists of the following:

15

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2010			2009		2010			2009
Current expense	$	91,736		$	97,079	$	564,790		$	194,147
Deferred expense (benefit)		(79,989	)		116,537		(92,457	)		71,387
Total	$	11,747		$	213,616	$	472,333		$	265,534

Actual federal income taxes vary from amounts computed by applying the current federal income tax rate of 34 percent to income before federal income taxes due to the following:

	Three Months Ended June 30,										Six Months Ended June 30,
	2010					2009					2010					2009
Income before federal income taxes	$	171,910				$	798,323				$	1,662,101				$	1,128,349
Tax at statutory rate		58,449		34.0	%		271,430		34.0	%		565,114		34.0	%		383,639		34.0	%
Tax effect of :
Nontaxable investment income		(53,966	)	(31.4	%)		(60,740	)	(7.6	%)		(110,693	)	(6.7	%)		(122,357	)	(10.9	%)
Nondeductible expenses, net		8,379		4.9	%		2,923		0.4	%		19,027		1.2	%		4,249		0.4	%
Other, net		(1,115	)	(0.7	%)		3		0.0	%		(1,115	)	(0.1	%)		3		0.0	%
Federal income tax expense	$	11,747		6.8	%	$	213,616		26.8	%	$	472,333		28.4	%	$	265,534		23.5	%

Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of June 30, 2010 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 of net operating loss carryforwards will not be realized and therefore a valuation allowance of approximately $1,010,000 will be maintained for the deferred tax asset associated with these amounts.

At June 30, 2010 and December 31, 2009 the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

16

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	June 30, 2010			December 31, 2009
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	482,861		$	390,239
Unearned premium reserves		2,020,299			1,893,838
Postretirement benefits accrued		613,510			618,565
Unrealized losses on investments		45,856			—
Net operating loss carryforward		2,158,419			2,226,423
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		288,098			252,027
Total deferred federal income tax assets		5,966,740			5,738,789
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,459,975	)		(1,364,651	)
Unrealized gains on investments		—			(53,621	)
Property and equipment		(131,152	)		(141,626	)
Other deferred tax liabilities		(3,873	)		(13,229	)
Total deferred federal income tax liabilities		(1,595,000	)		(1,573,127	)
Net deferred federal income tax asset		4,371,740			4,165,662
Valuation allowance		(1,010,037	)		(1,010,037	)
Net deferred tax asset	$	3,361,703		$	3,155,625

17

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2009, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.

Fremont Michigan InsuraCorp, Inc. (the “Company” or the “Holding Company”) and Fremont Insurance Company (the “Insurance Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in our filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the Company, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can find many of these statements by looking for words such as “believes,” “intends,” “expects,” “plans,” “anticipates,” “seeks,” “estimates,” “projects,” or similar expressions in this report. Determination of loss and loss adjustment expense reserves and amounts due from reinsurers are based substantially on estimates and the amounts so determined are inherently forward-looking.

The forward-looking statements are subject to numerous assumptions, risks and uncertainties. We have identified several important factors that could cause actual results to differ materially from any results discussed, contemplated, projected, forecast, estimated or budgeted in the forward-looking information. These factors, which are listed below, are difficult to predict and many are beyond our control:

• future economic conditions and the legal and regulatory environment in Michigan;

• the effects of weather-related and other catastrophic events;

• financial market conditions, including, but not limited to, changes in fiscal, monetary and tax policies, interest rates and values of investments;

• the impact of acts of terrorism and acts of war on investment and reinsurance markets;

• inflation;

• the cost, availability and collectibility of reinsurance;

• estimates and adequacy of loss reserves and trends in losses and loss adjustment expenses;

• heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new and existing competitors;

• our inability to obtain regulatory approval of, or to implement, premium rate increases;

• inability to carry out marketing and sales plans, including, among others, development of new products or changes to existing products and acceptance of the new or revised products in the market;

• unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;

• adverse litigation or arbitration results;

• technological change;

• the ability to carry out our business plans; and

• adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, and changes that affect the cost of, or demand for, our products.

• the effect of Federal legislative or regulatory matters; and

• the effect of Federal or state judicial rulings.

Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking information. Therefore, we caution you not to place undue reliance on this forward-looking information, which speaks only as of the date of this filing.

All subsequent written and oral forward-looking information attributable to the Holding Company or the Insurance Company or any person acting on our behalf is expressly qualified in its entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to publicly release any revisions that may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this filing.

Overview of Fremont Michigan InsuraCorp

Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. Fremont Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents. We were founded in 1876 and have served Michigan policyholders for over 134 years. We market policies through approximately 175 independent insurance agencies. Fremont Insurance Company has a financial strength rating of “A-” (Excellent) by A.M. Best. The Holding Company is subject to regulation by the Michigan Office of Financial and Insurance Services (“OFIR”) as its primary

18

regulator because it is the holding company for Fremont Insurance Company. As of June 30, 2010, we had approximately 72,900 policies in force and assets of $116.3 million.

General

We use accounting principles that are in compliance with those generally accepted in the United States of America (GAAP). Management’s discussion and analysis covers the Company’s financial condition and results of operations for the three and six months ended June 30, 2010 and 2009. The Company’s fiscal year ends on December 31.

Critical Accounting Policies and Estimates

General. Our discussion and analysis of financial condition, results of operations and liquidity and capital resources is based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We generally base our estimates on historical experience or other appropriate assumptions that we believe are reasonable and relevant under the circumstances and evaluate them on an ongoing basis. The results of these estimation processes form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the critical accounting policies and estimates discussed below reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. These may be further commented upon in applicable sections on Results of Operations and Liquidity and Capital Resources that follow. These policies are more fully described below as well as in our 2009 Annual Report on Form 10-K. There have been no material changes to these policies during the most recent quarter.

Liabilities for Loss and Loss Adjustment Expenses. The liability for losses and loss adjustment expenses represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported. The amount of loss reserves for reported claims is based primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for unreported claims and loss adjustment expenses are determined using historical information by line of insurance as adjusted to current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews of historical reserving results over multiple years.

Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. Specifically, on a quarterly basis, we review existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior accident years. We use historical paid and incurred losses and accident year data to derive expected ultimate loss and loss adjustment expense ratios by line of business. We then apply these expected loss and loss adjustment expense ratios to earned premiums to derive a reserve level for each line of business. In connection with the determination of the reserves, we also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends with respect to theories of liability. Some of our business relates to coverage for short-term risks, and for these risks loss development is comparatively rapid and historical paid losses, adjusted for known variables, have been a reliable predictive measure of future losses for purposes of our reserving. Some of our business relates to longer-term risks, where the claims are slower to emerge and the estimate of damage is more difficult to predict. For these lines of business, more sophisticated actuarial methods, such as the Bornhuetter-Ferguson loss development methods must be employed to project an ultimate loss expectation, and then the related loss history must be regularly evaluated and loss expectations updated, with the possibility of variability from the initial estimate of ultimate losses.

When a claim is reported to us, our claims representatives establish a “case reserve” for the estimated amount of the ultimate payment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of the estimator. The individual estimating the reserve considers the nature and value of the specific claim, the severity of injury or damage, and the policy provisions relating to the type of loss. Case reserves are adjusted by our claims staff as more information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain incurred but not reported (“IBNR”) reserves to provide for already incurred claims that have not yet been reported and developments on reported claims. The IBNR reserve is determined by estimating our ultimate net liability for both reported and IBNR claims and then subtracting the case reserves and payments made to date for reported claims.

Reserves are estimates because there are uncertainties inherent in the determination of ultimate losses. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past as well as create uncertainties regarding future loss cost trends. Accordingly, the ultimate liability for unpaid losses and loss adjustment expenses will likely differ from the amount recorded at June 30, 2010.

19

We have four business segments: personal, commercial, farm and marine. The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of June 30, 2010 and December 31, 2009 (in thousands):

	June 30, 2010		December 31, 2009
Reported losses
Personal	$	12,059	$	8,443
Commercial		3,450		3,121
Farm		1,233		1,029
Marine		472		353
		17,214		12,946
IBNR losses
Personal		4,884		4,614
Commercial		3,442		3,030
Farm		422		416
Marine		331		325
		9,079		8,385
Total
Personal		16,943		13,057
Commercial		6,892		6,151
Farm		1,655		1,445
Marine		803		678
	$	26,293	$	21,331

The reserves are reported gross of any amounts recoverable from reinsurers and are reduced for anticipated salvage and subrogation. Anticipated salvage and subrogation as of June 30, 2010 and December 31, 2009, was approximately $105,000 and $151,000, respectively.

Investments. At June 30, 2010 and December 31, 2009, all of the Company’s investments are classified as available-for-sale and are investments that would be available to be sold in response to the Company’s liquidity needs, changes in market interest rates and asset-liability management strategies, among others. Available-for-sale investments are recorded at fair value, with the corresponding unrealized appreciation or depreciation, net of deferred income taxes, reported as a component of accumulated other comprehensive income or loss until realized.

The Company reviews the status and market value changes of its investment portfolio on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. When a fixed maturity security has a decline in value, where fair value is below amortized cost, an OTTI write-down is triggered in circumstances where (1) the Company has the intent to sell the security, (2) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis, or (3) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell the security or if it is more-likely-than-not the Company will be required to sell the security before recovery, an OTTI write-down is recognized as a realized loss in the statement of operations equal to the difference between the security’s amortized cost and its fair value. If the Company does not intend to sell the security or it is not more-likely-than-not that the Company will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss, which is recognized as a realized loss in the statement of operations, and the amount related to all other factors, which is recognized in other comprehensive income.

When an equity security has a decline in value, where fair value is below cost, that is deemed to be other than temporary, the Company reduces the book value of such security to its current fair value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within stockholders’ equity.

In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities market conditions, and analyst expectations, to reach its conclusions.

20

In reviewing its equity securities, which include common stock and mutual funds, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions. In addition to analyzing each individual security that has a fair value below cost, the Company also considers its intent and ability to hold a security until its fair value is equal to or greater than its cost.

Reinsurance. Net premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned premiums ceded to them are reported as assets. Reinsurance assumed from other companies, including assumed premiums written and earned and losses and LAE, is accounted for in the same manner as direct insurance written.

Reinsurance recoverables include balances due from reinsurance companies for paid and unpaid losses and LAE that will be recovered from reinsurers, based on contracts in force. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with respect to the individual reinsurer that participates in its ceded programs to minimize its exposure to significant losses from reinsurer insolvencies. When necessary the Company holds collateral in the form of letters of credit or trust accounts for amounts recoverable from reinsurers that are not considered authorized insurers by the State of Michigan Office of Financial and Insurance Regulation.

At June 30, 2010 and December 31, 2009, the Company’s recoverable from reinsurers was comprised of the following:

	June 30, 2010		December 31, 2009
Paid losses and LAE	$	1,240,607	$	1,041,969
Unpaid losses and LAE		9,105,538		6,817,483
Amounts due from reinsurers	$	10,346,145	$	7,859,452

Federal Income Taxes. Deferred federal income tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

Description of Ratios Analyzed. In the analysis of our operating results that follows, we refer to various financial ratios and other measures that management uses to analyze and compare the underwriting results of our insurance operations. We calculate the loss and LAE ratio, policy acquisition and other underwriting expense ratio and combined ratio on a GAAP basis. As such, we calculate these ratios by using net premiums earned as the denominator. There have been no material changes to the calculation and use of these ratios during the most recent quarter. The Company also calculates underwriting gain (loss) on a GAAP basis. This measure equals the net premiums earned less loss and loss adjustment expenses as well as policy acquisition and other underwriting expenses. It is another measure used by management and insurance regulators to evaluate the underwriting performance of our insurance operations.

21

Results of Operations – Three Months Ended June 30, 2010 and 2009

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the three months ended June 30, 2010 and 2009. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2010			2009			Dollar			Percentage
Underwriting gain (loss)
Personal	$	(917,152	)	$	671,336		$	(1,588,488	)	(236.6	%)
Commercial		(227,958	)		(574,099	)		346,141		60.3	%
Farm		(72,781	)		56,996			(129,777	)	(227.7	%)
Marine		(40,650	)		11,092			(51,742	)	(466.5	%)
Total underwriting gain		(1,258,541	)		165,325			(1,423,866	)	(861.3	%)
Other revenue items
Net investment income		413,939			438,980			(25,041	)	(5.7	%)
Net realized gains on investments		862,207			14,833			847,374		5712.8	%
Other income		154,305			179,185			(24,880	)	(13.9	%)
Total other revenue items		1,430,451			632,998			797,453		126.0	%
Income before federal income taxes		171,910			798,323			(626,413	)	(78.5	%)
Federal income tax expense		(11,747	)		(213,616	)		201,869		(94.5	%)
Net income	$	160,163		$	584,707		$	(424,544	)	(72.6	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended June 30, 2010 and 2009.

	2010			2009			Change			% Change
Direct premiums written	$	20,246,988		$	17,303,818		$	2,943,170		17.0	%
Net premiums written	$	17,039,097		$	14,610,221		$	2,428,876		16.6	%
Net premiums earned	$	14,564,629		$	13,197,608		$	1,367,021		10.4	%
Loss and LAE		10,953,852			8,773,377			2,180,475		24.9	%
Policy acquisition and other underwriting expenses		4,869,318			4,258,906			610,412		14.3	%
Underwriting gain (loss)	$	(1,258,541	)	$	165,325		$	(1,423,866	)	(861.3	%)
Loss and LAE ratio		75.2	%		66.5	%		8.7	%
Policy acquisition and other underwriting expense ratio		33.4	%		32.3	%		1.1	%
Combined ratio		108.6	%		98.8	%		9.8	%

Premiums. The property and casualty industry is affected by soft and hard market business cycles no different than most other industries. During a soft market price competition tends to increase as insurers are willing to reduce premium rates in order to maintain growth in premium volume. The soft market makes it more difficult to attract new business as well as retain exposures which are adequately priced. Although we recognize the need to remain competitive in the Michigan market during the current soft market the Company remains committed to its disciplined underwriting philosophy of only accepting risks which we feel are appropriately priced while declining risks which are under priced for the level of coverage provided.

Direct premiums written by major business segment for the three months ended June 30 are presented in the table below:

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	2010		2009		$ Change			% Change
Direct Premiums Written:
Personal	$	14,141,306	$	12,137,212	$	2,004,094		16.5	%
Commercial		3,640,344		2,722,934		917,410		33.7	%
Farm		1,540,906		1,513,144		27,762		1.8	%
Marine		924,432		930,528		(6,096	)	(0.7	%)
	$	20,246,988	$	17,303,818	$	2,943,170		17.0	%

Direct written premiums for the personal segment increased 16.5% over 2009, due to growth in the personal auto line which was up 24.9% and the homeowner’s line which was up 9.2%. Growth was generated in each line from both new and renewal business. Personal auto new business increased 40.9% while renewal business grew 22.2%. Homeowner new business was up 37.1% and renewal business was up 5.4%.

The commercial segment was up 33.7% driven primarily by new business growth of 138.9%. Commercial renewal business was up 6.4%. During this quarter we were able to write several larger commercial accounts which led to the new business increase. Farm direct written premium was up 1.8%, with new business up 17.4% and renewal premiums up 2.4%. Direct written premium for the marine business decreased 0.7%, driven by renewal business which was down 2.7%. Marine new business premiums were up 10.7%.

Overall, direct written premiums were up 17.0%, with new business premiums up 59.1% and renewal premiums up 10.1%. These excellent results can be attributed to the agency relationships and automation we continue to invest in to make Fremont our independent agents company of choice.

Net premiums written by major business segment for the three months ended June 30 are presented in the table below:

	2010		2009		$ Change			% Change
Net Premiums Written:
Personal	$	11,955,474	$	10,386,262	$	1,569,212		15.1	%
Commercial		2,852,107		1,988,854		863,253		43.4	%
Farm		1,342,932		1,353,224		(10,292	)	(0.8	%)
Marine		888,584		881,881		6,703		0.8	%
	$	17,039,097	$	14,610,221	$	2,428,876		16.6	%

The increase in net premiums written is due to growth in direct premiums written of $2,943,000 offset by an increase of $514,000 in ceded premiums written under the Company’s reinsurance agreements.

Net premiums earned by major business segment for the three months ended June 30 are presented in the table below:

	2010		2009		$ Change			% Change
Net Premiums Earned:
Personal	$	10,793,110	$	9,753,637	$	1,039,473		10.7	%
Commercial		2,044,596		1,721,143		323,453		18.8	%
Farm		1,243,485		1,248,223		(4,738	)	(0.4	%)
Marine		483,438		474,605		8,833		1.9	%
	$	14,564,629	$	13,197,608	$	1,367,021		10.4	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $1,650,000 offset by an increase of $283,000 in ceded premiums earned under the Company’s reinsurance agreements.

Loss and Loss Adjustment Expenses (LAE). The Company’s net loss and LAE, incurred claim count, average loss and LAE per claim and the loss and LAE ratios for the three months ended June 30 are shown in the tables below:

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	2010			2009			$ Change			% Change
Loss and LAE:
Personal	$	8,447,945		$	6,500,129		$	1,947,816		30.0	%
Commercial		1,279,717			1,294,219			(14,502	)	(1.1	%)
Farm		874,530			762,311			112,219		14.7	%
Marine		351,660			216,718			134,942		62.3	%
	$	10,953,852		$	8,773,377		$	2,180,475		24.9	%
Incurred Claim Count:
Personal		2,525			2,466			59		2.4	%
Commercial		257			243			14		5.8	%
Farm		133			137			(4	)	(2.9	%)
Marine		64			89			(25	)	(28.1	%)
		2,979			2,935			44		1.5	%
Average Loss and LAE per Claim:
Personal	$	3,346		$	2,636		$	710		26.9	%
Commercial		4,979			5,326			(347	)	(6.5	%)
Farm		6,575			5,564			1,011		18.2	%
Marine		5,495			2,435			3,060		125.7	%
	$	3,677		$	2,989		$	688		23.0	%
Loss and LAE Ratio:
Personal		78.3	%		66.6	%
Commercial		62.6	%		75.2	%
Farm		70.3	%		61.1	%
Marine		72.7	%		45.7	%
		75.2	%		66.5	%

Incurred losses and LAE for the personal segment increased $1,948,000 as compared to the same quarter in 2009 causing the segment’s loss and LAE ratio to increase to 78.3% for the quarter ended June 30, 2010 as compared to 66.6% for the same quarter in 2009. During the 2010 quarter, losses from personal auto physical damage increased $690,000 while auto liability losses increased $785,000. The increased losses in auto are a result of elevated loss severity on both physical damage and liability coverage. The loss and LAE ratio for personal auto was 78.4% in the 2010 quarter compared to 60.6% in the prior year quarter. Losses from the homeowner’s product line increased $544,000 during the 2010 quarter as compared to 2009. The increase was a result of higher weather related losses, particularly hail and wind damage, which occurred during the quarter. The loss and LAE ratio for homeowners was 81.7% in the 2010 quarter compared to 74.3% in the 2009 quarter.

The commercial segment experienced a decrease of $15,000 in its loss and LAE while the loss and LAE ratio dropped to 62.6% in the quarter ended June 30, 2010 from 75.2% in the 2009 quarter. During the quarter, losses from fire and weather related damages as well as from commercial auto decreased as compared to the same quarter in 2009 while losses from workers compensation increased.

Incurred losses and LAE for the farm segment increased $112,000 compared to the same quarter in 2009. The increase was caused by higher weather related losses, particularly hail and wind damage, which occurred during the quarter offset by a reduction in large fire losses. The marine segment experienced an increase in loss and LAE due to higher casualty losses.

Policy Acquisition and Other Underwriting Expenses. Policy acquisition and other underwriting expenses for the three months ended June 30 were as follows:

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	2010			2009			Change			% Change
Amortization of deferred policy acquisition costs	$	2,261,105		$	2,040,632		$	220,473		10.8	%
Other underwriting expenses		2,608,213			2,218,274			389,939		17.6	%
Total policy acquisition and other underwriting expenses	$	4,869,318		$	4,258,906		$	610,412		14.3	%
Net premiums earned	$	14,564,629		$	13,197,608		$	1,367,021		10.4	%
Expense ratio		33.4	%		32.3	%		1.1	%

Amortization of deferred policy acquisition costs (“DAC”) increased during the second quarter of 2010 as compared to the same period in 2009 as a result of increased earned premium volume which increased 10.4%. Other underwriting expenses as a percentage of net premiums earned increased from 16.8% to 17.9% as a result of increased legal expenses.

Investment Income. The Company’s net investment income excluding realized gains, average invested assets including cash and cash equivalents and the rate of return for the three months ended June 30 are as follows:

	2010			2009			Change			% Change
Fixed maturities	$	455,339		$	501,737		$	(46,398	)	(9.2	%)
Equity securities		62,278			8,510			53,768		631.8	%
Cash and cash equivalents		10,634			17,957			(7,323	)	(40.8	%)
Gross investment income		528,251			528,204			47		0.0	%
Less: Investment expenses		(114,312	)		(89,224	)		25,088		28.1	%
Net investment income	$	413,939		$	438,980		$	(25,041	)	(5.7	%)
Average invested assets (amortized cost basis)	$	78,137,110		$	70,351,718		$	7,785,392		11.1	%
Rate of return on average invested assets		2.1	%		2.5	%		(0.4	%)

Gross investment income from the fixed portfolio declined during the second quarter of 2010 compared to 2009 due primarily to sales and maturities in the portfolio which have been reinvested in the lower yield environment. During the second quarter of 2010, the Company had sales and maturities of approximately $9.1 million which generated realized gains of $367,467. A stalling economic recovery has led to lower interest rates, and the proceeds of the sales and maturities were therefore reinvested at lower yields. The securities purchased were of similar credit quality and duration as those sold. The fixed portfolio duration at June 30, 2010 was 4.35 which remains lower than in prior year quarters. At June 30, 2010, the tax equivalent book yield of the fixed portfolio was 3.69% compared to 4.50% as of June 30, 2009.

The increase in gross income from the equity portfolio is due to the Company increasing its holdings of dividend paying equity securities which began in the second quarter of 2009. The decline in income from cash and cash equivalents is a result of a lower average cash balance during the second quarter of 2010 compared to the same period in the prior year.

The table below summarizes the net realized gains generated during the three month period ended June 30:

	2010		2009			Change		% Change
Net realized gains - fixed maturities	$	367,467	$	15,198		$	352,269	2317.9	%
Net realized gains (losses) - equity securities		494,740		(365	)		495,105	135645.2	%
Total net realized gains (losses)	$	862,207	$	14,833		$	847,374	5712.8	%

During the quarter ended June 30, 2010 the Company recognized gains in both the fixed and equity portfolio. Given the volatility in both the equity and fixed markets, the Company decided to recognize a portion of the appreciation in the investment portfolio when the opportunity presented itself during the quarter. During the quarter ended June 30, 2009, the Company generated net realized gains in the fixed portfolio as a result of efforts to reduce the portfolios duration.

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Income Tax Expense. During the quarters ended June 30, 2010 and 2009 the Company recorded income tax expense of approximately $12,000 and $214,000, respectively. The decrease is due to a decline in pre-tax income in the 2010 quarter compared to the prior year quarter. The effective tax rate for the quarter ended June 30, 2010 was 6.8% compared to 26.8% in the prior year quarter. The decrease in the effective tax rate is due to the fact that tax-exempt interest income earned during the second quarter of 2010 comprises a larger portion of pretax income for the quarter as compared to 2009.

Results of Operations – Six Months Ended June 30, 2010 and 2009

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statements of income for the six months ended June 30, 2010 and 2009. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2010			2009			Dollar			Percentage
Underwriting gain (loss)
Personal	$	(928,623	)	$	229,078		$	(1,157,701	)	(505.4	%)
Commercial		(388,594	)		(563,824	)		175,230		31.1	%
Farm		344,842			(188,037	)		532,879		283.4	%
Marine		246,596			176,122			70,474		40.0	%
Total underwriting gain		(725,779	)		(346,661	)		(379,118	)	(109.4	%)
Other revenue items
Net investment income		854,150			940,165			(86,015	)	(9.1	%)
Net realized gains on investments		1,222,008			211,494			1,010,514		477.8	%
Other income		311,722			323,351			(11,629	)	(3.6	%)
Total other revenue items		2,387,880			1,475,010			912,870		61.9	%
Income before federal income taxes		1,662,101			1,128,349			533,752		47.3	%
Federal income tax expense		(472,333	)		(265,534	)		(206,799	)	77.9	%
Net income	$	1,189,768		$	862,815		$	326,953		37.9	%

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the six months ended June 30, 2010 and 2009.

	2010			2009			Change			% Change
Direct premiums written	$	36,333,570		$	31,719,502		$	4,614,068		14.5	%
Net premiums written	$	30,038,456		$	26,353,035		$	3,685,421		14.0	%
Net premiums earned	$	28,548,417		$	26,018,489		$	2,529,928		9.7	%
Loss and LAE		19,481,732			17,994,570			1,487,162		8.3	%
Policy acquisition and other underwriting expenses		9,792,464			8,370,580			1,421,884		17.0	%
Underwriting gain (loss)	$	(725,779	)	$	(346,661	)	$	(379,118	)	(109.4	%)
Loss and LAE ratio		68.2	%		69.2	%		(1.0	%)
Policy acquisition and other underwriting expense ratio		34.3	%		32.2	%		2.1	%
Combined ratio		102.5	%		101.4	%		1.1	%

Premiums. The property and casualty industry is affected by soft and hard market business cycles no different than most other industries. During a soft market price competition tends to increase as insurers are willing to reduce premium rates in order to maintain growth in premium volume. The soft market makes it more difficult to attract new business as well as retain exposures which are adequately priced. Although we recognize the need to remain competitive in the Michigan market during the current soft market the Company remains committed to its disciplined underwriting philosophy of only accepting risks which we feel are appropriately priced while declining risks which are under priced for the level of coverage provided.

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Direct premiums written by major business segment for the six months ended June 30 are presented in the table below:

	2010		2009		Change			% Change
Direct Premiums Written:
Personal	$	25,871,910	$	22,421,427	$	3,450,483		15.4	%
Commercial		6,360,562		5,304,006		1,056,556		19.9	%
Farm		2,855,095		2,726,031		129,064		4.7	%
Marine		1,246,003		1,268,038		(22,035	)	(1.7	%)
	$	36,333,570	$	31,719,502	$	4,614,068		14.5	%

The market continues to be very competitive for target market personal lines and commercial lines business. In personal lines we are starting to experience some rate hardening, however, commercial lines continues to be soft. Despite these market conditions, we continue to be able to increase volume of target market business. Direct premium written for the personal segment increased 15.4%, with personal auto up 20.8% and homeowners up 9.4%. New business for personal auto was up 19.6% while renewals were up 21.1%. Homeowner new business premium was up 19.3% with renewal premiums increasing 7.7%.

Direct premium written for the commercial segment increased 19.9% as a result of new business growth of 54.3%. During the second quarter we were able to write several larger commercial accounts which led to the new business increase. Commercial renewal premium was up 10.6%.

Direct premium written in the farm segment increased 4.7%, as a result of renewal premium growth of 7.0%. However, this was offset by a decrease in new business which was down 12.2% as a result of a larger new business account, of approximately $90,000, which was included in the 2009 premiums. Direct premium written for the marine segment decreased 1.7%, with new business down 5.6% and renewal business down 1.6%.

Our results continue to reflect the emphasis we place on agency relationships, providing consistent pricing, underwriting and competitive product offerings, and ease of doing business with our Fremont Complete technology platform. Our policy retention continues in the 90’s with policy count up 4.1% from December 2009.

Net premiums written by major business segment for the six months ended June 30 are presented in the table below:

	2010		2009		Change			% Change
Net Premiums Written:
Personal	$	21,619,392	$	19,004,461	$	2,614,931		13.8	%
Commercial		4,819,541		3,720,078		1,099,463		29.6	%
Farm		2,424,038		2,456,273		(32,235	)	(1.3	%)
Marine		1,175,485		1,172,223		3,262		0.3	%
	$	30,038,456	$	26,353,035	$	3,685,421		14.0	%

The increase in net premiums written is due to the overall increase in direct premiums written of $4,614,000 offset by an increase of $929,000 in ceded premiums written under the Company’s reinsurance agreements.

Net premiums earned by major business segment for the six months ended June 30 are presented in the table below:

	2010		2009		Change			% Change
Net Premiums Earned:
Personal	$	21,166,111	$	19,105,019	$	2,061,092		10.8	%
Commercial		3,984,990		3,496,729		488,261		14.0	%
Farm		2,432,562		2,471,326		(38,764	)	(1.6	%)
Marine		964,754		945,415		19,339		2.0	%
	$	28,548,417	$	26,018,489	$	2,529,928		9.7	%

27

The increase in net premiums earned is due to the overall increase in direct premiums earned of $3,123,000 offset by an increase of $593,000 in ceded premiums earned under the Company’s reinsurance agreements.

Loss and Loss Adjustment Expenses (LAE). The Company’s net loss and LAE, incurred claim count, average loss and LAE per claim and the loss and LAE ratios for the six months ended June 30 are shown in the tables below:

	2010			2009			Change			% Change
Loss and LAE:
Personal	$	15,561,645		$	13,412,117		$	2,149,528		16.0	%
Commercial		2,320,054			2,407,929			(87,875	)	(3.6	%)
Farm		1,197,662			1,790,692			(593,030	)	(33.1	%)
Marine		402,371			383,832			18,539		4.8	%
	$	19,481,732		$	17,994,570		$	1,487,162		8.3	%
Incurred Claim Count:
Personal		4,249			4,404			(155	)	(3.5	%)
Commercial		408			397			11		2.8	%
Farm		184			256			(72	)	(28.1	%)
Marine		86			114			(28	)	(24.6	%)
		4,927			5,171			(244	)	(4.7	%)
Average Loss and LAE per Claim:
Personal	$	3,662		$	3,045		$	617		20.3	%
Commercial		5,686			6,065			(379	)	(6.2	%)
Farm		6,509			6,995			(486	)	(6.9	%)
Marine		4,679			3,367			1,312		39.0	%
	$	3,954		$	3,480		$	474		13.6	%
Loss and LAE Ratio:
Personal		73.5	%		70.2	%
Commercial		58.2	%		68.9	%
Farm		49.2	%		72.5	%
Marine		41.7	%		40.6	%
		68.2	%		69.2	%

The increase in incurred loss and LAE in the personal segment resulted from higher losses in the personal auto product line. During the six months ended June 30, 2010, incurred losses from personal auto physical damage increased $705,000 while auto liability losses increased $1,520,000. The loss and LAE ratio for personal auto was 73.9% for the six months ended June 30, 2010 compared to 62.2% for the same period in 2009. The increase in the loss ratio for personal auto is due to increased severity and frequency from auto liability losses experienced during the 2010 period. The homeowner’s line had a loss ratio of 75.7% for the six months ended June 30, 2010 compared to 80.0% in 2009. The improvement in the homeowners’s loss ratio is due to growth in net premiums earned.

The commercial segment experienced a decrease of $88,000 in its loss and LAE while the loss and LAE ratio dropped to 58.2% for the six months ended June 30, 2010 from 68.9% in the 2009 period. The lower loss ratio in 2010 was due to a decrease in losses from weather related damages coupled with growth in net premiums earned. The farm segment’s loss ratio was 49.2% for the six months ended June 30, 2010 compared to 72.5% in the 2009 period. The lower loss ratio in 2010 is due to a large decline in fire related losses in 2010 as compared to 2009 as well as a decrease in weather related damages in 2010.

Policy Acquisition and Other Underwriting Expenses. Policy acquisition and other underwriting expenses for the six months ended June 30 were as follows:

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	2010			2009			Change			% Change
Amortization of deferred policy acquisition costs	$	4,496,942		$	4,055,785		$	441,157		10.9	%
Other underwriting expenses		5,295,522			4,314,795			980,727		22.7	%
Total policy acquisition and other underwriting expenses	$	9,792,464		$	8,370,580		$	1,421,884		17.0	%
Net premiums earned	$	28,548,417		$	26,018,489		$	2,529,928		9.7	%
Expense ratio		34.3	%		32.2	%		2.1	%

Amortization of deferred policy acquisition costs (“DAC”) increased during the 2010 period as compared to the same period in 2009 as a result of increased earned premium volume. As a percentage of net premiums earned DAC amortization increased slightly from 15.6% to 15.8%. Other underwriting expenses as a percentage of net premiums earned increased from 16.6% to 18.5% due to increase legal expenses.

Investment Income. The Company’s net investment income excluding realized gains, average invested assets including cash and cash equivalents and the rate of return for the six months ended June 30 are as follows:

	2010			2009			Change			% Change
Fixed maturities	$	927,469		$	1,069,177		$	(141,708	)	(13.3	%)
Equity securities		97,104			8,667			88,437		1020.4	%
Cash and cash equivalents		22,094			38,791			(16,697	)	(43.0	%)
Gross investment income		1,046,667			1,116,635			(69,968	)	(6.3	%)
Less: Investment expenses		(192,517	)		(176,470	)		16,047		9.1	%
Net investment income	$	854,150		$	940,165		$	(86,015	)	(9.1	%)
Average invested assets (amortized cost basis)	$	77,686,469		$	70,886,816		$	6,799,653		9.6	%
Rate of return on average invested assets		2.2	%		2.7	%		(0.5	%)

Gross investment income from the fixed portfolio declined during the six months ended June 30, 2010 compared to 2009 due primarily to sales and maturities in the portfolio which have been reinvested in the lower yield environment. During the 2010 period, the Company had sales and maturities of approximately $27.1 million which generated realized gains of $654,948. The proceeds of the sales and maturities were reinvested at lower yields which have reduced the income provided by the fixed portfolio. The securities purchased were of similar credit quality and duration as those sold. The fixed portfolio duration at June 30, 2010 was 4.35 which remains lower than in prior year quarters. At June 30, 2010, the tax equivalent book yield of the fixed portfolio was 3.69% compared to 4.50% as of June 30, 2009.

The increase in gross income from the equity portfolio is due to the Company increasing its holdings of dividend paying equity securities which began in the second quarter of 2009. The decline in income from cash and cash equivalents is a result of a lower average cash balance during the 2010 period compared to the same period in the prior year.

The table below summarizes the net realized gains generated during the six months ended June 30, 2010 and 2009:

	2010		2009			Change		% Change
Net realized gains - fixed maturities	$	654,948	$	269,024		$	385,924	143.5	%
Net realized gains (losses) - equity securities		567,060		(57,530	)		624,590	1085.7	%
Total net realized gains	$	1,222,008	$	211,494		$	1,010,514	477.8	%

During the six months ended June 30, 2010 the Company recognized gains in both the fixed and equity portfolio. Given the volatility in both the equity and fixed markets, the Company decided to recognize a portion of the appreciation in the investment portfolio when the opportunity presented itself.

Income Tax Expense. During the six months ended June 30, 2010 and 2009 the Company recorded income tax expense of approximately $472,000 and $266,000, respectively. The increase is due to higher pre-tax income in 2010 compared to the prior year

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period. The effective tax rate for the six months ended June 30, 2010 was 28.4 % compared to 23.5% in the prior year period. The increase in the effective tax rate is due to higher non-deductible expenses and the fact that tax-exempt interest income earned in 2010 made up a smaller component of pre-tax income as compared to 2009.

Liquidity and Capital Resources

The principal sources of funds for the Company are insurance premiums, investment income and proceeds from the maturity and sale of invested assets. Funds are primarily used for the payment of claims, commissions, salaries and employee benefits, other operating expenses and shareholder dividends. Our short and long term liquidity requirements vary because of the uncertainties regarding the settlement dates for liabilities for unpaid claims and because of the potential for large losses, either individually or in the aggregate.

We maintain investment and reinsurance programs that are intended to provide sufficient funds to meet our obligations without forced sales of investments. A portion of our investment portfolio is maintained in relatively short term and highly liquid assets, including mortgage-backed securities, which have shorter estimated durations, to ensure the availability of funds.

Cash flow provided by operations was $2,624,000 and $3,942,000 for the six months ended June 30, 2010 and 2009, respectively, a decrease of $1,318,000. During the six months ended June 30, 2010 as compared to the same period in 2009, net premiums collected increased $3,104,000, net loss and LAE payments decreased $821,000, policy acquisition and other underwriting expenses paid increased $3,668,000 and federal income taxes paid increased $1,600,000. Other cash provided by operations increased $25,000 during the six months ended June 30, 2010 compared to the same period in 2009.

During the six months ended June 30, 2010, cash flow provided by investing activities was $2,001,000 while during the same period in 2009 cash flow used in investing activities was $74,000. The increase in cash flow from investing activities is a result of increased sales and maturities in the investment portfolio during the 2010 period as compared to 2009 offset by higher capital expenditures in 2010 due to continued development of the commercial package web-based rating platform.

Cash provided by financing activities was $161,000 and $59,000 for the six months ended June 30, 2010 and 2009, respectively. During the six months ended June 30, 2010, financing activities consisted of the issuance of common stock which generated $358,000 in proceeds, share repurchases of approximately $82,000 and cash dividends of $141,000 paid to stockholders.

During the six months ended June 30, 2010, the Company has paid two quarterly cash dividends of $.04 per common share each, collectively totaling $141,000. The Board’s current intention is to evaluate each quarter whether a cash dividend will be declared. The payment of future dividends will depend upon the availability of cash resources at the Holding Company, the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board of Directors.

During the six months ended June 30, 2010, the Company repurchased 3,090 shares of our common stock under a repurchase plan which was previously announced on May 8, 2008. The shares were repurchased at a cost of approximately $82,000, or $26.43 per share. See Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for details of our share repurchase program.

We believe that our existing cash and funds generated from operations will be sufficient to satisfy our financial requirements during the foreseeable future

Changes in Interest Rates

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the market valuation of these securities. Therefore, an adverse change in market prices of these securities would result in losses reflected in the balance sheet. The following table shows the effects of a change in interest rates on the fair value of our fixed maturity investment portfolio. We have assumed an immediate increase or decrease of 1% or 2% in interest rates. You should not consider this assumption or the values shown in the table to be a prediction of actual future results.

Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	51,662	$	(5,099	)
1%		54,233		(2,528	)
0		56,761		—
-1%		59,248		2,487
-2%		61,694		4,933

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Vice President of Finance, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Vice President of Finance, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Vice President of Finance concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have not been any changes in our internal control over financial reporting, as defined by the Securities and Exchange Commission Rule 13a-15(f), during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot be sure that our results of operations and financial condition will not be materially adversely affected by any litigation.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The Holding Company’s principal source of cash available for payment of dividends is dividends from the Insurance Company. The payment of dividends by the Insurance Company is subject to limitations imposed by the Michigan Insurance Code. The Insurance Company may not pay an extraordinary dividend unless it notifies the Insurance Commissioner and he does not disapprove the payment. An extraordinary dividend includes any dividend which, when taken together with other dividends paid within the preceding 12 months, exceeds the greater of 10% of the Insurance Company’s statutory policyholders’ surplus as of December 31 of the immediately preceding year or its statutory net income, excluding realized capital gains, for the 12-month period ending December 31 of the immediately preceding year. During the year ended December 31, 2010, the Insurance Company can pay a non-extraordinary dividend of up to $3,694,000 without prior approval from the Insurance Commissioner. In order to pay any dividends, the Insurance Company must be in a position to satisfy the requirement that the Company continues to be safe, reliable and entitled to public confidence. Also, in the absence of approval of the Insurance Commissioner, dividends may only be paid from statutory earned surplus. Also, dividends may not exceed the amount of the Insurance Company’s statutory capital stock account in any one year unless it meets certain other requirements.

On November 25, 2008, the Company’s Board of Directors adopted the Agent Stock Purchase Plan (“Plan”). The Plan provides for the sale of up to 100,000 shares of the Company’s Class A Common Stock over the five year estimated term of the Plan. The Plan has been established by the Company to provide incentive to independent insurance agencies that sell products and services of its subsidiary, Fremont Insurance Company, by enabling them to participate in the Company’s long-term growth and success and to help align their success with the interests of the Company’s stockholders.

The Common Stock offered by the Company under this Plan will not have been registered with, or approved, by the United States Securities and Exchange Commission (“SEC”). The offering of the Common Stock under the Plan is based on an exemption from such registration as set forth in §4(2) of the Securities Act of 1933, as amended (“Act”), and Rule 506 of Regulation D issued

31

under the Act. The offering is being made only to eligible agencies of the Insurance Company and eligible persons designated by those agencies who are “accredited investors” as defined under Regulation D issued under the Act and to not more than 35 eligible persons in any 12 month period who may not be accredited investors, but are “sophisticated” investors. Resales of the unregistered Class A Common Stock will require registration or the availability of an exemption to registration such as SEC Rule 144.

The Common Stock will be offered directly to participants through our officers, and we will not use a broker or a dealer. We will not pay commissions, discounts or any other payments to any person for services in connection with the offer or sale of shares under the Plan. Participants will not incur brokerage commissions or service charges. The Company intends to use the proceeds of this offering for general corporate purposes which include making investments in and advances to the Insurance Company, which in turn will use the proceeds for general corporate purposes.

The following table sets forth the sales of unregistered securities under the Plan during the quarter ended June 30, 2010:

Recent Sales of Unregistered Securities

Date of Sale	Number of Shares Sold	Offering Price		Total Consideration Received
June 5, 2010	4,886	$	19.43	$	94,935

The following table sets forth the repurchases of common stock for the quarter ended June 30, 2010:

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans
Month ended April 30, 2010	—	$	—	—	38,660
Month ended May 31, 2010	—	$	—	—	38,660
Month ended June 30, 2010	—	$	—	—	38,660
Total	—			—

(1) On May 8, 2008, the Company announced a share repurchase plan for up to 100,000 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. RESERVED.

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

(a) Exhibits. The following documents are included as exhibits to this report on Form 10-Q. Documents not accompanying this report are incorporated by reference as indicated.

NUMBER	TITLE
31.1	Certification of President and Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Vice President of Finance under Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification pursuant to 18 U.S.C. Section 1350.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FREMONT MICHIGAN INSURACORP, INC.
Date: August 13, 2010	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: August 13, 2010	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance (principal financial and accounting officer)

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard E. Dunning, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Fremont Michigan InsuraCorp, Inc.;

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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2010	/s/ Richard E. Dunning
	Richard E. Dunning, President and Chief Executive Officer

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EX-31.2

EXHIBIT 31.2

CERTIFICATIONS OF PERIODIC REPORTS PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin G. Kaastra, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Fremont Michigan InsuraCorp, Inc.;

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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2010	/s/ Kevin G. Kaastra
	Kevin G. Kaastra, Vice President of Finance (principal financial and accounting officer)

35

EX-32

EXHIBIT 32

CERTIFICATION

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Solely for the purpose of complying with 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned in his capacity as an officer of Fremont Michigan InsuraCorp, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

1. The accompanying Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2010	/s/ Richard E. Dunning
	Richard E. Dunning, President and Chief Executive Officer
Date: August 13, 2010	/s/ Kevin G. Kaastra
	Kevin G. Kaastra, Vice President of Finance (principal financial and accounting officer)

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

36