8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported):  May 10, 2007

KMG America Corporation

(Exact Name of Registrant as Specified in Charter)

Virginia	1-32377	20-1377270
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

12600 Whitewater Drive, Suite 150
Minnetonka, Minnesota	55343
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (952) 930-4800

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02.   RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On May 10, 2007, the Corporation posted on its website the KMG America Corporation Quarterly Financial Supplement for First Quarter 2007 — Revised, which is attached as Exhibit 99.1 to this report, and is incorporated herein by reference. The supplement was revised on May 10, 2007, to reflect the cash settlement award the Corporation agreed to pay as part of a settlement agreement the Corporation entered into resolving all claims in the previously disclosed lawsuit by subsidiaries of ING America U.S.

The information in this Form 8-K and the exhibit attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing made by the Corporation under the Securities Act of 1933, as amended.

ITEM 9.01.   FINANCIAL STATEMENTS AND EXHIBITS.

Exhibits.

Exhibit No.	Description
99.1	KMG America Corporation Quarterly Financial Supplement for First Quarter 2007 - Revised.

2

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 hereunto duly authorized.

		KMG AMERICA CORPORATION
		(Registrant)
Date: May 10, 2007	By:	/s/  James E. Nelson
		James E. Nelson
		Senior Vice President, General Counsel & Secretary

3

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1	KMG America Corporation Quarterly Financial Supplement for First Quarter 2007 - Revised.

4

EX-99.1

Exhibit 99.1

KMG America Corporation (KMA)

Quarterly Financial Supplement

First Quarter 2007 – Revised (see below)

This report is for information purposes only. It should be read in conjunction with other documents filed by KMG America with the Securities and Exchange Commission, including the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and earnings press releases furnished on Form 8-K. The interim financial statements and related data included herein are unaudited. This report is dated May 10, 2007. Information contained in this report may not be accurate after such date. KMG America does not undertake a duty to update this information after such date.

This statistical supplement was revised on May 10, 2007, to reflect the settlement of the ING/ReliaStar lawsuit on May 4, 2007 that was incorporated into our first quarter earnings in the Form 10-Q filed on Thursday, May 10, but was not reflected in the earnings release and original statistical supplement that were dated Monday, May 7, 2007.

KMG America Corporation

Quarterly Financial Supplement

First Quarter 2007

Table of Contents:			Page(s)
KMG America background			1
KMG America analyst coverage			2
Disclaimers			3
Statements of operations:
	n	Total company results - quarterly	4
	n	Total company results - year-to-date	5
	n	Kanawha legacy results - quarterly	6
	n	Kanawha legacy results - year-to-date	7
	n	New large case activity results - quarterly	8
	n	New large case activity results - year-to-date	9
Calculations of diluted shares outstanding			10
Share-based compensation detail			11
Normalization of statements of operations:
	n	Summary of earnings results - quarterly	12
	n	Summary of earnings results - year-to-date	13
	n	Details of normalizing adjustments	14-16
	n	Development of GAAP equity allocations for ROE calculations	17
Balance sheet			18
Segment results:
	n	Segment results - quarterly	19-21
	n	Segment results - year-to-date	22-24
Sales Results:
	n	Sales results - quarterly	25
	n	Sales results - year-to-date	26
List of footnote references			27
APPENDIX - Segment Pro Forma Results:
	n	Rationale for pro forma segment analysis	28
	n	Pro forma segment quarterly operating results	29-31
	n	Reconciliation of pro forma operating income, consolidated statements of income and segment assets (unaudited)	32-33

KMG America Corporation

Quarterly Financial Supplement

First Quarter 2007

KMG America Background

KMG America is a holding company incorporated under the laws of Commonwealth of Virginia on January 21, 2004. KMG America commenced operations shortly before it completed its initial public offering of common stock on December 21, 2004, and its shares trade on the New York Stock Exchange under the symbol “KMA”. Concurrently with the completion of its initial public offering, KMG America completed its acquisition of Kanawha and its subsidiaries, which are KMG America’s primary operating subsidiaries and which underwrite and sell life and health insurance products. Kanawha, the primary operating subsidiary of KMG America, is licensed to issue life and accident and health insurance. Kanawha is domiciled in South Carolina. Kanawha has one wholly owned subsidiary, Kanawha HealthCare Solutions, Inc., a third-party administrator with operations in Lancaster and Greenville, South Carolina. The primary insurance products that we underwrite include: life insurance; disability insurance; dental insurance; indemnity health insurance; critical illness insurance and employer excess risk insurance. We ceased actively underwriting new long-term care insurance policies after December 31, 2005. We intend to retain and actively manage our existing block of in force long-term care policies. Our third-party administration and medical management businesses include a wide array of services with the primary emphasis on the offering of administrative service-only products. Historically, our sales have been primarily in the southeastern United States, predominantly in Florida, South Carolina and North Carolina, but are now expanding nationwide. Sales are made through an internal sales force, full-time agents, general agents and brokers. Under our current business strategy, we expect group lines of business to account for an increasing percentage of the Company’s premium revenues.

The operations of KMG America commenced shortly before the acquisition of Kanawha, which was funded by an initial public offering of KMG America common stock completed in December, 2004, in which 21.7 million shares were sold at $9.50 per share. The offering raised approximately $190 million after offering expenses were deducted. The $145 million purchase of Kanawha was financed with $130 million of cash and a $15 million subordinated 5 year note accruing interest at 5% per annum. Excess capital from the IPO has funded certain start-up costs, and will support future growth.

We have separated the financial performance of KMG America into two primary components: “Kanawha legacy activity” and “new large case activity”. This has been done to highlight the results of operations of, and trends in, the Kanawha business activity that existed prior to the acquisition (“Kanawha legacy activity”) from the financial performance related to transforming KMG America into a new public company with a new marketing focus (the financial results included in the “new large case activity” includes all public company costs, the cost of the new management team, and all incremental sales and underwriting costs and product revenues associated with sales generated by the new national sales organization).

For SEC reporting purposes KMG America is composed of five reporting segments:

1.	Worksite Insurance Business (includes both the new large case activity and the Kanawha legacy worksite business that prior to the acquisition by KMG America sold voluntary payroll-deduct products to smaller employers through specialized independent and career agents in the Southeast, primarily the Carolinas);
2.	Senior Market Insurance Business (includes long term care product sales sold primarily through a specialized independent sales force managed by a company-owned agency based in Fort Myers, Florida. The agency was sold in 2005, new sales of long term care policies were effectively discontinued, and the profitable book of long term care policies in-force is now effectively managed as a closed block);
3.	Acquired Business (includes various closed blocks of group and individual life and health policies Kanawha acquired from other insurance companies from the late 1980’s through the late 1990’s);
4.	Third Party Administration Business (includes revenues and costs associated with the unaffiliated clients of Kanawha Healthcare Solutions, an affiliated third party administrator focused primarily on employer self-funded medical plans); and
5.	Corporate and Other (includes unallocated expenses and investment income relating to both the new large case activity and the Kanawha legacy activity).

The executive office of KMG America is located in Minnetonka, Minnesota at 12600 Whitewater Drive, Suite 150, 55343. Kanawha Insurance Company is located in Lancaster, South Carolina at 210 South White Street, 29720. KMG America is a Virginia corporation, and Kanawha Insurance Company is domiciled in South Carolina. The stock of KMG America is publicly traded on the New York Stock Exchange under the symbol “KMA.”

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KMG America Corporation

Quarterly Financial Supplement

First Quarter 2007

KMG America (KMA) Analyst Coverage Information

FIRM	ANALYST	PHONE NUMBER
Credit Suisse	Thomas Gallagher	212-538-2010
	Craig Siegenthaler	212-325-3104
Friedman Billings Ramsey	Randy Binner	703-312-1890
Piper Jaffray	Michael Grasher	312-920-2142
SunTrust Robinson Humphrey	David Lewis	404-926-5097

Investor inquiries may be directed to:
Scott H. DeLong, Chief Financial Officer	Tim Daniels, Vice President, Corporate Planning
Email: scott.delong@kmgamerica.com	Email: tim.daniels@kmgamerica.com
Voice: 952-930-4804	Voice: 952-930-4807
Fax: 952-930-4802	Fax: 952-930-4802

Note: This list is provided for informational purposes only. KMA does not endorse the analyses, conclusions, or recommendations contained in any report issued by these or any other analysts.

Statistical data will be available immediately after the release of earnings for each quarter through KMA’s company website http://www.kmgamerica.com. The statistical supplement can be accessed through the “Investor Relations” tab, “Financial Reports” tab, and can be located under the “Quarterly & Other Reports” section.

2

KMG America Corporation

Quarterly Financial Supplement

First Quarter 2007

DISCLAIMERS

NON-GAAP FINANCIAL MEASURES:

Operating Income - To supplement the financial statements presented on a GAAP basis, the Company reported operating income, which is a non-GAAP measure. Operating income is defined as net income excluding realized investment gains/losses (except for realized investment gains/losses that are directly offset by executive deferred compensation expense), net of income taxes. Management believes this non-GAAP measure provides investors, potential investors, securities analysts and others with useful additional information to evaluate the performance of the business, because it excludes items that management believes are not indicative of the operating results of the business. In addition, this non-GAAP measure is used by management to evaluate the operating performance of the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income determined in accordance with GAAP.

Normalized Earnings – To supplement the financial statements presented on a GAAP basis, the Company reported “normalized” earnings, which is a non-GAAP measure. Normalized earnings are defined as operating income adjusted for timing differences and unusual and nonrecurring items, net of income taxes. Management believes this non-GAAP measure provides investors, potential investors, securities analysts and others with useful additional information to evaluate the performance of the business, because it excludes items that management believes are not indicative of the operating results of the business. In addition, this non-GAAP measure is used by management to evaluate the operating performance of the Company. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income determined in accordance with GAAP. We have placed this derivation for the current and most recent seven quarters on pages 12-16 in this statistical supplement. While this exercise requires management’s subjective judgment, the details are identified and described so the investors and analysts can form their own opinions.

A reconciliation of the non-GAAP financial measures contained in this statistical supplement to the most comparable GAAP measures appears in the attached tables.

FORWARD LOOKING INFORMATION:

This statistical supplement contains certain forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause the Company’s actual results to differ materially from those expressed in the forward-looking statements including, but not limited to: implementation of its business strategy; hiring and retaining key employees; predicting and managing claims and other costs; fluctuations in its investment portfolio; financial strength ratings of its insurance subsidiary; government regulations, policies and investigations affecting the insurance industry; competitive insurance products and pricing; reinsurance costs; fluctuations in demand for insurance products; possible recessionary trends in the U.S. economy; and other risks that are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission. The Company assumes no obligation to publicly update or revise any forward-looking statements.

3

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

	TOTAL COMPANY
	Quarter Ended
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	39,916		$	33,261		$	34,235		$	30,662		$	29,811		$	27,450		$	26,423		$	26,817
Net investment income		7,876			7,668			7,453			7,619			7,206			7,203			7,089			6,800
Commission and fee income		4,168			4,151			4,018			4,117			4,219			3,553			3,773			3,671
Gain on extinguishment of debt		—			1,021			—			—			—			—			—			—
Other income		1,059			1,267			1,275			923			986			898			1,200			978
Total revenues		53,019			47,368			46,981			43,321			42,222			39,104			38,485			38,266
Policyholder benefits		37,543			25,929			26,186			24,373			23,354			21,322			21,890			20,646
Insurance commissions, net of deferrals		4,152			3,574			3,246			2,924			2,981			2,353			2,239			2,377
Expenses, taxes, fees and depreciation, net of deferrals		14,432			14,085			12,578			13,274			12,852			12,530			12,058			13,103
Amortization of DAC and VOBA (2)		2,081			91			1,682			1,155			1,178			706			463			1,214
Total benefits and expenses		58,208			43,679			43,692			41,726			40,365			36,911			36,650			37,340
Operating income (loss) before income taxes		(5,189	)		3,689			3,289			1,595			1,857			2,193			1,835			926
(Provision) for income taxes		(5,002	)		(1,303	)		(1,150	)		(543	)		(630	)		(730	)		(586	)		(224	)
Operating income (loss)		(10,191	)		2,386			2,139			1,052			1,227			1,463			1,249			702
Items excluded from operating income:
Realized investment gains (losses)		(53	)		1,115			7			(115	)		211			34			278			19
Deferred compensation expense adjustment		(58	)		(264	)		(181	)		61			(197	)		(113	)		(141	)		—
Cumulative effect of accounting change		—			—			—			—			—			271			—			—
Total items excluded from operating income, before tax		(111	)		851			(174	)		(54	)		14			192			137			19
Income taxes, not applicable to operating income		39			(298	)		61			19			(5	)		(67	)		(48	)		(7	)
Total items excluded from operating income, after tax		(72	)		553			(113	)		(35	)		9			125			89			12
Net income (loss)	$	(10,263	)	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714
Earnings per share - fully diluted:
- Net income	$	(0.46	)	$	0.13		$	0.09		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03
- Operating income	$	(0.46	)	$	0.11		$	0.10		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03
Annual return on average equity (operating income basis)		-21.0	%		4.8	%		4.4	%		2.2	%		2.5	%		3.1	%		2.6	%		1.5	%
Weighted-average shares outstanding - diluted:		22,258			22,213			22,208			22,218			22,138			22,110			22,094			22,072
Effective tax rate		-93.6	%		35.3	%		34.9	%		34.0	%		33.9	%		33.4	%		32.2	%		24.4	%
Benefit ratio (3)		94.1	%		78.0	%		76.5	%		79.5	%		78.3	%		77.7	%		82.8	%		77.0	%
Expense ratio (4)		46.9	%		47.4	%		45.8	%		49.9	%		50.0	%		50.3	%		48.9	%		54.8	%
Average portfolio yield (5)		5.16	%		5.20	%		5.11	%		5.25	%		4.95	%		4.88	%		4.81	%		4.69	%
Average invested assets	$	560,301		$	551,464		$	544,679		$	532,746		$	519,669		$	495,358		$	482,435		$	485,978
Average cash/equivalents & short term assets (6)		50,356			37,946			38,813			47,363			62,679			95,232			107,271			94,583
Total average cash and invested assets	$	610,657		$	589,409		$	583,492		$	580,109		$	582,348		$	590,591		$	589,707		$	580,562

Refer to page 27 for footnote descriptions

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KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

	TOTAL COMPANY
	Year-to-Date
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	39,916		$	127,969		$	94,708		$	60,473		$	29,811		$	106,888		$	79,438		$	53,015
Net investment income		7,876			29,946			22,278			14,825			7,206			27,745			20,542			13,453
Commission and fee income		4,168			16,505			12,354			8,336			4,219			14,565			11,012			7,239
Gain on extinguishment of debt		—			1,021			—			—			—			—			—			—
Other income		1,059			4,451			3,184			1,909			986			3,868			2,970			1,770
Total revenues		53,019			179,892			132,524			85,543			42,222			153,066			113,962			75,477
Policyholder benefits		37,543			99,842			73,913			47,727			23,354			84,288			62,966			41,076
Insurance commissions, net of deferrals		4,152			12,725			9,151			5,905			2,981			9,635			7,282			5,043
Expenses, taxes, fees and depreciation, net of deferrals		14,432			52,789			38,704			26,126			12,852			49,167			36,637			24,579
Amortization of DAC and VOBA (2)		2,081			4,106			4,015			2,333			1,178			3,468			2,762			2,299
Total benefits and expenses		58,208			169,462			125,783			82,091			40,365			146,558			109,647			72,997
Operating income (loss) before income taxes		(5,189	)		10,430			6,741			3,452			1,857			6,508			4,315			2,480
(Provision) for income taxes		(5,002	)		(3,625	)		(2,323	)		(1,173	)		(630	)		(2,092	)		(1,362	)		(776	)
Operating income (loss)		(10,191	)		6,805			4,418			2,279			1,227			4,416			2,953			1,704
Items excluded from operating income:
Realized investment gains (losses)		(53	)		1,218			103			96			211			358			324			46
Deferred compensation expense adjustment		(58	)		(581	)		(317	)		(136	)		(197	)		(254	)		(141	)		—
Total items excluded from operating income, before tax		(111	)		637			(214	)		(40	)		14			104			183			46
Income taxes, not applicable to operating income		39			(223	)		75			14			(5	)		(36	)		(64	)		(16	)
Cumulative effect of accounting change, net of tax		—			—			—			—			—			176			—			—
Total items excluded from operating income, after tax		(72	)		414			(139	)		(26	)		9			244			119			30
Net income (loss)	$	(10,263	)	$	7,219		$	4,279		$	2,253		$	1,236		$	4,660		$	3,072		$	1,734
Earnings per share - fully diluted:
- Net income	$	(0.46	)	$	0.33		$	0.19		$	0.10		$	0.06		$	0.21		$	0.14		$	0.08
- Operating income	$	(0.46	)	$	0.31		$	0.20		$	0.10		$	0.06		$	0.20		$	0.13		$	0.08
Annual return on average equity (operating income basis)		-21.0	%		3.5	%		3.0	%		2.4	%		2.5	%		2.3	%		2.1	%		1.8	%
Weighted-average shares outstanding - diluted:		22,258			22,202			22,199			22,197			22,138			22,091			22,084			22,106
Effective tax rate		-93.6	%		34.8	%		34.4	%		34.0	%		33.9	%		32.2	%		31.7	%		31.4	%
Benefit ratio (3)		94.1	%		78.0	%		78.0	%		78.9	%		78.3	%		78.9	%		79.3	%		77.5	%
Expense ratio (4)		46.9	%		48.2	%		48.4	%		49.9	%		50.0	%		51.3	%		51.6	%		53.0	%
Average portfolio yield (5)		5.16	%		5.12	%		5.10	%		5.10	%		4.95	%		4.75	%		4.69	%		4.64	%
Average invested assets	$	560,301		$	536,132		$	532,174		$	525,911		$	519,669		$	484,763		$	477,893		$	477,699
Average cash/equivalents & short term assets (6)		50,356			48,390			50,746			55,353			62,679			99,406			106,424			102,189
Total average cash and invested assets	$	610,657		$	584,522		$	582,920		$	581,264		$	582,348		$	584,169		$	584,318		$	579,888

Refer to page 27 for footnote descriptions

5

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

	KANAWHA LEGACY ACTIVITY
	Quarter Ended
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	24,067		$	24,448		$	24,401		$	25,495		$	25,276		$	25,626		$	25,414		$	26,721
Net investment income		7,876			7,668			7,453			7,619			7,206			7,203			7,089			6,800
Commission and fee income		4,168			4,151			4,018			4,117			4,219			3,553			3,773			3,671
Gain on extinguishment of debt		—			—			—			—			—			—			—			—
Other income		951			1,058			1,275			923			986			898			1,200			978
Total revenues		37,062			37,325			37,147			38,154			37,687			37,280			37,476			38,170
Policyholder benefits		20,170			17,592			18,382			20,960			20,282			20,185			21,267			20,576
Insurance commissions, net of deferrals		2,512			2,311			2,293			2,215			2,342			2,171			2,136			2,363
Expenses, taxes, fees and depreciation, net of deferrals		8,747			8,763			8,518			8,570			8,598			8,672			8,509			9,076
Amortization of DAC and VOBA (2)		1,480			(200	)		1,352			961			984			641			342			1,214
Total benefits and expenses		32,909			28,466			30,545			32,706			32,206			31,669			32,254			33,229
Operating income before income taxes		4,153			8,859			6,602			5,448			5,481			5,611			5,222			4,941
(Provision) for income taxes		(1,439	)		(3,112	)		(2,309	)		(1,891	)		(1,899	)		(1,926	)		(1,772	)		(1,630	)
Operating income	$	2,714		$	5,747		$	4,293		$	3,557		$	3,583		$	3,685		$	3,451		$	3,311
Operating earnings per share - fully diluted:	$	0.12		$	0.26		$	0.19		$	0.16		$	0.16		$	0.17		$	0.16		$	0.15
Annual return on average equity (operating income basis)		5.8	%		12.6	%		9.7	%		8.2	%		8.4	%		8.9	%		8.5	%		8.3	%
Weighted-average shares outstanding - diluted:		22,258			22,213			22,208			22,218			22,138			22,110			22,094			22,072
Effective tax rate		34.6	%		35.1	%		35.0	%		34.7	%		34.6	%		34.3	%		33.9	%		33.0	%
Benefit ratio (3)		83.8	%		72.0	%		75.3	%		82.2	%		80.2	%		78.8	%		83.7	%		77.0	%
Expense ratio (4)		45.0	%		38.0	%		42.8	%		39.7	%		40.4	%		39.4	%		37.6	%		41.6	%

Refer to page 27 for footnote descriptions

6

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income (unaudited)
(in thousands, except share data and percentages)

	KANAWHA LEGACY ACTIVITY
	Year-to-Date
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	24,067		$	99,620		$	75,172		$	50,771		$	25,276		$	103,959		$	78,333		$	52,919
Net investment income		7,876			29,946			22,278			14,825			7,206			27,745			20,542			13,453
Commission and fee income		4,168			16,505			12,354			8,336			4,219			14,565			11,012			7,239
Gain on extinguishment of debt		—			—			—			—			—			—			—			—
Other income		951			4,242			3,184			1,909			986			3,868			2,970			1,770
Total revenues		37,062			150,313			112,988			75,841			37,687			150,137			112,857			75,381
Policyholder benefits		20,170			77,216			59,624			41,242			20,282			82,458			62,273			41,006
Insurance commissions, net of deferrals		2,512			9,161			6,850			4,557			2,342			9,336			7,165			5,029
Expenses, taxes, fees and depreciation, net of deferrals		8,747			34,449			25,686			17,168			8,598			35,287			26,615			18,106
Amortization of DAC and VOBA (2)		1,480			3,097			3,297			1,945			984			3,282			2,641			2,299
Total benefits and expenses		32,909			123,923			95,457			64,912			32,206			130,363			98,694			66,440
Operating income before income taxes		4,153			26,390			17,531			10,929			5,481			19,774			14,163			8,941
(Provision) for income taxes		(1,439	)		(9,211	)		(6,099	)		(3,790	)		(1,899	)		(6,735	)		(4,809	)		(3,037	)
Operating income	$	2,714		$	17,179		$	11,432		$	7,139		$	3,583		$	13,039		$	9,354		$	5,904
Operating earnings per share - fully diluted:	$	0.12		$	0.77		$	0.51		$	0.32		$	0.16		$	0.59		$	0.42		$	0.27
Annual return on average equity (operating income basis)		5.8	%		9.7	%		8.8	%		8.3	%		8.4	%		8.1	%		7.8	%		7.5	%
Weighted-average shares outstanding - diluted:		22,258			22,202			22,199			22,197			22,138			22,091			22,084			22,106
Effective tax rate		34.6	%		34.9	%		34.8	%		34.7	%		34.6	%		34.1	%		34.0	%		34.0	%
Benefit ratio (3)		83.8	%		77.5	%		79.3	%		81.2	%		80.2	%		79.3	%		79.5	%		77.5	%
Expense ratio (4)		45.0	%		40.2	%		40.9	%		40.0	%		40.4	%		40.4	%		40.8	%		42.3	%

Refer to page 27 for footnote descriptions

7

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income - unaudited
(in thousands, except share data and percentages)

	NEW LARGE CASE ACTIVITY
	Quarter Ended
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	15,849		$	8,813		$	9,834		$	5,167		$	4,535		$	1,824		$	1,009		$	96
Net investment income		—			—			—			—			—			—			—			—
Commission and fee income		—			—			—			—			—			—			—			—
Gain on extinguishment of debt		—			1,021			—			—			—			—			—			—
Other income		108			209			—			—			—			—			—			—
Total revenues		15,957			10,043			9,834			5,167			4,535			1,824			1,009			96
Policyholder benefits		17,373			8,337			7,804			3,413			3,072			1,137			623			70
Insurance commissions, net of deferrals		1,640			1,263			953			709			639			182			103			14
Expenses, taxes, fees and depreciation		5,685			5,322			4,060			4,704			4,254			3,858			3,549			4,027
Amortization of DAC and VOBA (2)		601			291			330			194			194			65			121			—
Total benefits and expenses		25,299			15,213			13,147			9,020			8,159			5,242			4,396			4,111
Income (loss) before income taxes		(9,342	)		(5,170	)		(3,313	)		(3,853	)		(3,624	)		(3,418	)		(3,387	)		(4,015	)
(Provision) for income taxes		(3,563	)		1,810			1,160			1,349			1,268			1,196			1,185			1,405
Operating income (loss)	$	(12,905	)	$	(3,361	)	$	(2,153	)	$	(2,504	)	$	(2,356	)	$	(2,222	)	$	(2,202	)	$	(2,610	)
Operating income (loss) per share - diluted	$	(0.58	)	$	(0.15	)	$	(0.09	)	$	(0.11	)	$	(0.10	)	$	(0.10	)	$	(0.10	)	$	(0.12	)
Weighted-average shares outstanding:		22,258			22,213			22,208			22,218			22,138			22,110			22,094			22,072
Effective tax rate		-38.1	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Benefit ratio (3)		109.6	%		94.6	%		79.4	%		66.1	%		67.7	%		62.3	%		61.7	%		72.9	%
Expense ratio (4)		50.0	%		78.0	%		54.3	%		108.5	%		112.2	%		225.1	%		373.9	%		NA

Refer to page 27 for footnote descriptions

8

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated Statements of Income - unaudited
(in thousands, except share data and percentages)

	NEW LARGE CASE ACTIVITY
	Year-to-Date
Operating income (1):	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	15,849		$	28,349		$	19,536		$	9,702		$	4,535		$	2,929		$	1,105		$	96
Net investment income		—			—			—			—			—			—			—			—
Commission and fee income		—			—			—			—			—			—			—			—
Gain on extinguishment of debt		—			1,021			—			—			—			—			—			—
Other income		108			209			—			—			—			—			—			—
Total revenues		15,957			29,579			19,536			9,702			4,535			2,929			1,105			96
Policyholder benefits		17,373			22,626			14,289			6,485			3,072			1,830			693			70
Insurance commissions, net of deferrals		1,640			3,564			2,301			1,348			639			299			117			14
Expenses, taxes, fees and depreciation		5,685			18,340			13,018			8,958			4,254			13,880			10,022			6,473
Amortization of DAC and VOBA (2)		601			1,009			718			388			194			186			121			—
Total benefits and expenses		25,299			45,539			30,326			17,179			8,159			16,195			10,953			6,557
Income (loss) before income taxes		(9,342	)		(15,960	)		(10,790	)		(7,477	)		(3,624	)		(13,266	)		(9,848	)		(6,461	)
(Provision) for income taxes		(3,563	)		5,586			3,777			2,617			1,268			4,643			3,447			2,261
Operating income (loss)	$	(12,905	)	$	(10,374	)	$	(7,014	)	$	(4,860	)	$	(2,356	)	$	(8,623	)	$	(6,401	)	$	(4,200	)
Operating income (loss) per share - diluted	$	(0.58	)	$	(0.47	)	$	(0.31	)	$	(0.22	)	$	(0.10	)	$	(0.39	)	$	(0.29	)	$	(0.19	)
Weighted-average shares outstanding:		22,258			22,202			22,199			22,197			22,138			22,091			22,084			22,106
Effective tax rate		-38.1	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Benefit ratio (3)		109.6	%		79.8	%		73.1	%		66.8	%		67.7	%		62.5	%		62.7	%		72.9	%
Expense ratio (4)		50.0	%		80.8	%		82.1	%		110.2	%		112.2	%		490.4	%		928.5	%		NA
Refer to page 27 for footnote descriptions

9

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

CALCULATIONS OF DILUTED SHARES OUTSTANDING
(shares in actual amounts)

	Period Ended
	3/31/2007		12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005
Ending shares:
Common shares outstanding - basic		22,213,685		22,211,589		22,209,093		22,206,703		22,200,828		22,125,998		22,105,775		22,071,641
Incremental shares to compute diluted		—		87,520		—		33,818		2,073		4,628		—		33,026
Common shares outstanding - diluted		22,213,685		22,299,109		22,209,093		22,240,521		22,202,901		22,130,626		22,105,775		22,104,667
Weighted average shares - year-to-date:
Common shares outstanding - basic		22,211,761		22,187,830		22,180,730		22,167,545		22,133,240		22,085,585		22,077,950		22,071,641
Incremental shares to compute diluted		46,338		13,901		17,978		29,704		4,838		5,359		5,724		34,778
Common shares outstanding - diluted		22,258,099		22,201,731		22,198,708		22,197,249		22,138,078		22,090,944		22,083,674		22,106,419
Weighted average shares - quarter only:
Common shares outstanding - basic		22,211,761		22,209,016		22,206,893		22,201,305		22,133,240		22,108,489		22,090,273		22,071,641
Incremental shares to compute diluted		46,338		4,241		1,088		16,330		4,838		1,819		3,581		—
Common shares outstanding - diluted		22,258,099		22,213,257		22,207,981		22,217,635		22,138,078		22,110,308		22,093,854		22,071,641

10

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

SHARE BASED COMPENSATION DETAIL
(all amounts in actual dollars)

	Period Ended
	3/31/2007		12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005
STOCK OPTION DETAILS:
Option shares outstanding (end of period)		1,892,675		1,913,425		1,787,175		1,759,425		1,415,750		1,413,750		1,446,250		1,402,750		1,370,250
Average exercise price	$	9.16	$	9.16	$	9.17	$	9.20	$	9.47	$	9.47	$	9.48	$	9.52	$	9.52
COMMON STOCK GRANT DETAILS:
Common stock grants outstanding (end of period)		142,044		139,948		137,452		135,062		129,187		54,357		34,134	$	–	$	–
Average grant price	$	8.33	$	8.32	$	8.31	$	8.33	$	8.34	$	8.86	$	8.83	$	–	$	–
SHARE BASED COMPENSATION EXPENSE:
Quarter only	$	376,678	$	379,014	$	371,855	$	324,062	$	303,951	$	20,401	$	10,375	$	–	$	–
Year-to-date	$	376,678	$	1,378,882	$	999,868	$	628,013	$	303,951	$	30,776	$	10,375	$	–	$	–

11

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Reclassification of quarterly operating earnings results to normalize for timing differences and unusual and temporary items
(in thousands, except per share data and percentages)

KMG - TOTAL COMPANY:

	Quarter Ended
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	(10,191	)	$	2,386		$	2,139		$	1,052		$	1,227		$	1,463		$	1,249		$	702
EPS - fully diluted	$	(0.46	)	$	0.11		$	0.10		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03
Annualized ROE *		-21.0	%		4.8	%		4.4	%		2.2	%		2.5	%		3.1	%		2.6	%		1.5	%
Normalized operating earnings adjustments, after tax **	$	9,898		$	(363	)	$	(497	)	$	(450	)	$	(79	)	$	189		$	156		$	758
Normalized Adjusted Baseline
Operating income	$	(293	)	$	2,023		$	1,643		$	602		$	1,148		$	1,653		$	1,405		$	1,460
EPS - fully diluted	$	(0.01	)	$	0.09		$	0.07		$	0.03		$	0.05		$	0.07		$	0.06		$	0.07
Annualized ROE *		-0.6	%		4.1	%		3.3	%		1.2	%		2.4	%		3.4	%		3.0	%		3.1	%

KANAWHA LEGACY ACTIVITY:

	Quarter Ended
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	2,714		$	5,747		$	4,293		$	3,557		$	3,583		$	3,685		$	3,451		$	3,311
EPS	$	0.12		$	0.26		$	0.19		$	0.16		$	0.16		$	0.17		$	0.16		$	0.15
Annualized ROE *		5.8	%		12.6	%		9.7	%		8.2	%		8.4	%		8.9	%		8.5	%		8.3	%
Normalized operating earnings adjustments, after tax **	$	(91	)	$	(714	)	$	(91	)	$	145		$	586		$	(50	)	$	(174	)	$	91
Normalized Adjusted Baseline
Operating income	$	2,623		$	5,032		$	4,202		$	3,702		$	4,169		$	3,635		$	3,276		$	3,402
EPS - fully diluted	$	0.12		$	0.23		$	0.19		$	0.17		$	0.19		$	0.16		$	0.15		$	0.15
Annualized ROE *		5.6	%		11.0	%		9.5	%		8.5	%		9.8	%		8.7	%		8.1	%		8.5	%

NEW LARGE CASE ACTIVITY:

	Quarter Ended
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	(12,905	)	$	(3,361	)	$	(2,153	)	$	(2,504	)	$	(2,356	)	$	(2,222	)	$	(2,202	)	$	(2,610	)
EPS - fully diluted	$	(0.58	)	$	(0.15	)	$	(0.09	)	$	(0.11	)	$	(0.10	)	$	(0.10	)	$	(0.10	)	$	(0.12	)
Normalized operating earnings adjustments, after tax **	$	9,989		$	351		$	(406	)	$	(595	)	$	(665	)	$	239		$	331		$	668
Normalized Adjusted Baseline
Operating income	$	(2,916	)	$	(3,009	)	$	(2,559	)	$	(3,100	)	$	(3,021	)	$	(1,982	)	$	(1,871	)	$	(1,942	)
EPS - fully diluted	$	(0.13	)	$	(0.14	)	$	(0.12	)	$	(0.14	)	$	(0.14	)	$	(0.09	)	$	(0.08	)	$	(0.09	)

*	See page 17 for GAAP equity roll forward and allocation between Kanawha Legacy and New Large Case Activity
**	See page 14-16 for detailed description of unusual items

12

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Reclassification of year-to-date operating earnings results to normalize for timing differences and unusual and temporary items
(in thousands, except per share data and percentages)

KMG - TOTAL COMPANY:

	Year-to-Date
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	(10,191	)	$	6,805		$	4,418		$	2,279		$	1,227		$	4,416		$	2,953		$	1,704
EPS - fully diluted	$	(0.46	)	$	0.31		$	0.20		$	0.10		$	0.06		$	0.20		$	0.13		$	0.08
Annualized ROE *		-21.0	%		3.5	%		3.0	%		2.4	%		2.5	%		2.3	%		2.1	%		1.8	%
Normalized operating earnings adjustments, after tax **	$	9,898		$	(1,389	)	$	(1,026	)	$	(529	)	$	(79	)	$	1,456		$	1,217		$	887
Normalized Adjusted Baseline
Operating income	$	(293	)	$	5,416		$	3,393		$	1,750		$	1,148		$	5,873		$	4,170		$	2,591
EPS - fully diluted	$	(0.01	)	$	0.24		$	0.15		$	0.08		$	0.05		$	0.27		$	0.19		$	0.12
Annualized ROE *		-0.6	%		2.8	%		2.3	%		1.8	%		2.4	%		3.1	%		2.9	%		2.7	%

KANAWHA LEGACY ACTIVITY:

	Year-to-Date
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	2,714		$	17,179		$	11,432		$	7,139		$	3,583		$	13,039		$	9,354		$	5,904
EPS - fully diluted	$	0.12		$	0.77		$	0.51		$	0.32		$	0.16		$	0.59		$	0.42		$	0.27
Annualized ROE *		5.8	%		9.6	%		8.8	%		8.3	%		8.4	%		8.1	%		7.8	%		7.5	%
Normalized operating earnings adjustments, after tax **	$	(91	)	$	(74	)	$	640		$	731		$	586		$	—		$	—		$	—
Normalized Adjusted Baseline
Operating income	$	2,623		$	17,105		$	12,072		$	7,870		$	4,169		$	13,039		$	9,354		$	5,904
EPS - fully diluted	$	0.12		$	0.77		$	0.54		$	0.35		$	0.19		$	0.59		$	0.42		$	0.27
Annualized ROE *		5.6	%		9.6	%		9.3	%		9.2	%		9.8	%		8.1	%		7.8	%		7.5	%

NEW LARGE CASE ACTIVITY:

	Year-to-Date
Reported:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Operating income	$	(12,905	)	$	(10,374	)	$	(7,014	)	$	(4,860	)	$	(2,356	)	$	(8,623	)	$	(6,401	)	$	(4,200	)
EPS - fully diluted	$	(0.58	)	$	(0.47	)	$	(0.31	)	$	(0.22	)	$	(0.10	)	$	(0.39	)	$	(0.29	)	$	(0.19	)
Normalized operating earnings adjustments, after tax **	$	9,989		$	(1,315	)	$	(1,666	)	$	(1,260	)	$	(665	)	$	1,456		$	1,217		$	887
Normalized Adjusted Baseline
Operating income	$	(2,916	)	$	(11,689	)	$	(8,679	)	$	(6,120	)	$	(3,021	)	$	(7,167	)	$	(5,184	)	$	(3,313	)
EPS - fully diluted	$	(0.13	)	$	(0.53	)	$	(0.39	)	$	(0.28	)	$	(0.14	)	$	(0.32	)	$	(0.23	)	$	(0.15	)

*	See page 17 for GAAP equity roll forward and allocation between Kanawha Legacy and New Large Case Activity
**	See page 14-16 for detailed description of unusual items

13

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS
($ in thousands)

		Quarter Ended
		3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Normalization for unusual items (after tax):	Segment Reported
Premium refund (a)	Legacy - worksite	$	—		$	—		$	(211	)	$	—		$	211		$	—		$	—		$	—
Reserve mismatch (b)	Legacy - worksite		—			—			—			(176	)		176			—			—			—
Indemnification of items related to initial VOBA (c)	Legacy - corporate		—			—			(196	)		—			—			—			—			—
Dynamic VOBA adjustment (d)	Legacy - all except Corp.		(91	)		(485	)		240			245			123			(50	)		(174	)		91
LTC reserves (e)	Legacy - senior		—			(229	)		76			76			76			—			—			—
Subtotal Kanawha legacy adjustments			(91	)		(714	)		(91	)		145			586			(50	)		(174	)		91
Excess stop loss claims (f)	Large case - worksite		2,399			400			(362	)		(986	)		(942	)		(305	)		(210	)		8
Discount on subordinated note payoff (g)	Large case - corporate		—			(581	)		83			83			83			83			83			83
Valuation tax allowance for deferred tax asset (h)	Large case - corporate		6,544			—			—			—			—			—			—			—
Miscellaneous expenses (i)	Large case - worksite		—			180			(60	)		(60	)		(60	)		—			—			—
Short-term initial expenses (j)	Large case - corporate		1,047			352			(66	)		368			254			461			458			577
Subtotal new large case activity adjustments			9,989			351			(406	)		(595	)		(665	)		239			331			668
Total quarterly normalization adjustments, after-tax		$	9,898		$	(363	)	$	(497	)	$	(450	)	$	(79	)	$	189		$	156		$	758
Year-to-date summary of normalized adjustments, after-tax
Kanawha legacy adjustments		$	(91	)	$	(74	)	$	640		$	731		$	586		$	—		$	—		$	—
New large case activity adjustments			9,989			(1,315	)		(1,666	)		(1,260	)		(665	)		1,456			1,217			887
Total year-to-date normalization adjustments, after-tax		$	9,898		$	(1,389	)	$	(1,026	)	$	(529	)	$	(79	)	$	1,456		$	1,217		$	887

See pages 15-16 for description of each adjustment.

14

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS (continued)

Description of adjustments:

a.	Premium refund – represents a pre-tax charge of $325,000 for a one-time premium refund in the first quarter of 2006 resulting from a mass cancellation of an older Kanawha policy form in the state of Georgia. An offsetting credit was recognized in the third quarter of 2006 as a result of an indemnification from the previous shareholders of Kanawha.
b.	Reserve mismatch – relates to a $271,000 pre-tax charge in the first quarter of 2006 resulting from a mismatch of life insurance endowment benefits paid in cash and associated release of policy reserves. The related policy reserve release occurred in the second quarter of 2006.
c.	Indemnification of items related to initial VOBA – the indemnification from the previous shareholders of Kanawha recognized in the third quarter of 2006 included an additional $302,000 pre-tax benefit related to items that were booked during 2005 as adjustments to the opening value of business acquired (“VOBA”) asset as of December 31, 2004. As a result, the adjustments in 2005 did not directly relate to any reporting period in 2005.
d.	Dynamic VOBA Adjustment – VOBA amortization includes a “dynamic” adjustment each quarter that reflects the impact of actual versus expected premium persistency, thereby introducing volatility into the quarterly results. In order to smooth this volatility, the quarterly dynamic adjustment has been identified and spread back to the previous 4 quarters for purposes of presenting normalized earnings. See page 16 for further details.
e.	LTC reserves – the Company refined it’s methodology for factor-based reserving for its block of LTC insurance policies resulting in a year-to-date catch up in the fourth quarter of 2006 of $470,000 that was spread back equally over the previous three quarters.
f.	Excess stop loss claims – the Company recognized increased claims in excess of pricing of $3.7 million in the first quarter of 2007, $2.2 million in the fourth quarter of 2006 and $850,000 in the third quarter of 2006. Since these increased claims relate to prior reported earned premium, these excess claims have been spread back to earlier quarters to better align with the premium recognition of those same cases in the periods earned. The Company has decided to increase loss reserve assumptions prospectively on all reported premiums subsequent to January 1, 2007 to mitigate future volatility in this book of business. No normalization has been made for this change. See page 16 for further details.
g.	Discount on subordinated note payoff – the Company retired the $15 million subordinated note in the fourth quarter of 2006 and replaced it with bank debt. The Company incurred a pretax gain of $1,021,000 on the retirement of the subordinated note that it spread back to the periods over which it was due.
h.	Valuation allowance on deferred tax asset – the Company established a valuation allowance against the portion of the deferred tax asset related to the holding company of $6.5 million.
i.	Miscellaneous expenses – the Company incurred additional expense accruals in the fourth quarter of 2006 of $370,000 before taxes related to bonus accruals payable to sales reps and producers that were earned over the course of the year.
j.	Short-term initial expenses – the Company has incurred certain start-up expenses for compliance with federal securities laws in the first two years, and ING litigation defense costs that are material but temporary in nature. “Normalizing” entries have been made in all periods that have the effect of offsetting these temporary initial expenses. Because the Company received reimbursement of $474,000 before taxes under its D&O insurance coverage in the third quarter of 2006 for its legal expenses incurred in current and prior periods related to the ING litigation, the normalizing adjustment in the third quarter was a reduction in earnings as reported. The Company also reached an agreement to settle the ING/Reliastar lawsuit for $825,000 on May 4, 2007. This settlement has been included in the first quarter 2007 normalizing adjustment. The adjustment for federal securities law compliance expenses relates to costs the Company incurred in 2005 and 2006 in excess of its estimate of $600,000 of annualized ongoing costs for compliance in 2007 and in future periods when such costs are expected to stabilize.

15

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS (continued)

Calendarization details for stop loss excess claims and dynamic VOBA adjustments
($ in thousands)

				Quarter Ended
Stop loss “excess” claims	Total Excess			3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
2Q05	$	25		$	—		$	—		$	—		$	—		$	6		$	6		$	6		$	6
3Q05		(1,404	)		—			—			—			(351	)		(351	)		(351	)		(351	)		—
4Q05		(758	)		—			—			(189	)		(189	)		(189	)		(189	)		—			—
1Q06		(4,065	)		—			(1,016	)		(1,016	)		(1,016	)		(1,016	)		—			—			—
2Q06		(168	)		—			(56	)		(56	)		(56	)		—			—			—			—
3Q06		(451	)		—			(226	)		(226	)		—			—			—			—			—
4Q06		(292	)		—			(292	)		—			—			—			—			—			—
Aggregate gains		404			—			36			80			96			101			66			21			6
Subtotal “incurred”		(6,709	)		—			(1,554	)		(1,407	)		(1,517	)		(1,449	)		(469	)		(324	)		12
Actual stop loss “excess” claims booked					(3,690	)		(2,169	)		(850	)		—			—			—			—			—
Adjustment to reported (pretax)					3,690			615			(557	)		(1,517	)		(1,449	)		(469	)		(324	)		12
Adjustment to reported (aftertax)				$	2,399		$	400		$	(362	)	$	(986	)	$	(942	)	$	(305	)	$	(210	)	$	8

				Quarter Ended
Dynamic VOBA adjustments	Adjustment			3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
3Q05	$	383		$	—		$	—		$	—		$	—		$	—		$	—		$	128		$	128
4Q05		118			—			—			—			—			—			30			30			30
1Q06		(70	)		—			—			—			—			(18	)		(18	)		(18	)		(18	)
2Q06		(98	)		—			—			—			(24	)		(24	)		(24	)		(24	)		—
3Q06		216			—			—			54			54			54			54			—			—
4Q06		459			—			115			115			115			115			—			—			—
1Q07		187			47			47			47			47			—			—			—			—
Subtotal “incurred”		1,194			47			161			215			191			126			41			115			140
Actual dynamic VOBA adjustments reported		1,194			187			908			(154	)		(186	)		(63	)		118			383			—
Adjustment to reported (pretax)					(140	)		(746	)		369			376			189			(77	)		(268	)		140
Adjustment to reported (aftertax)				$	(91	)	$	(485	)	$	240		$	245		$	123		$	(50	)	$	(174	)	$	91

16

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Development of GAAP Equity for ROE Calculations
($ in thousands)

	Quarter Ended
KMG - total company	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
KMG reported net income - quarter only	$	(10,263	)	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714		$	1,020
Reported GAAP equity		182,653			192,052			189,967			176,352			181,083			187,483			187,774			194,411			184,440
Excluding FAS 115 g/(l) ***		(6,565	)		(7,053	)		(7,790	)		(19,008	)		(12,935	)		(4,995	)		(3,096	)		4,889			(4,368	)
GAAP equity excluding FAS 115 - ending ***		189,218			199,105			197,757			195,360			194,018			192,478			190,870			189,522			188,808
GAAP equity excluding FAS 115 - average quarter only ***		194,162			198,431			196,558			194,689			193,248			191,674			190,196			189,165			188,298
GAAP equity excluding FAS 115 - year-to-date ***		194,162			195,744			194,903			193,952			193,248			189,893			189,247			188,706			188,298
Kanawha legacy activity:
Net income - quarter only *	$	2,655		$	6,300		$	4,180		$	3,521		$	3,592		$	3,810		$	3,540		$	3,324		$	2,610
Attributed GAAP equity **		188,531			185,876			179,576			175,396			171,875			168,283			164,473			160,934			157,610
Attributed GAAP equity - average quarter only		187,203			182,726			177,486			173,635			170,079			166,378			162,704			159,272			156,305
Attributed GAAP equity - year-to-date		187,203			176,201			173,782			171,851			170,079			161,260			159,504			157,848			156,305
New large case activity:
GAAP equity excluding FAS 115 - ending ***	$	189,218		$	199,105		$	197,757		$	195,360		$	194,018		$	192,478		$	190,870		$	189,522		$	188,808
Less GAAP equity attributed to Kanawha legacy		(188,531	)		(185,876	)		(179,576	)		(175,396	)		(171,875	)		(168,283	)		(164,473	)		(160,934	)		(157,610	)
Equals GAAP equity attributed to new large case activity		700			13,229			18,181			19,964			22,144			24,195			26,397			28,588			31,198
Attributed GAAP equity - average quarter only		6,965			15,705			19,072			21,054			23,169			25,296			27,492			29,893			31,993
Attributed GAAP equity - year-to-date		6,965			19,543			21,121			22,101			23,169			28,633			29,743			30,858			31,993
* Development of Kanawha legacy net income for equity roll-forward
KMG reported net income	$	(10,263	)	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714		$	1,020
Less Large case new activity operating income		(12,905	)		(3,361	)		(2,153	)		(2,504	)		(2,356	)		(2,222	)		(2,202	)		(2,610	)		(1,590	)
Kanawha legacy net income (retained earnings)	$	2,642		$	6,300		$	4,180		$	3,521		$	3,592		$	3,810		$	3,540		$	3,324		$	2,610

** Allocation of initial GAAP equity attributed to the Kanawha legacy business is estimated at $155 million, consisting of the purchase price of $145 million plus the initial $10 million infusion into Kanawha insurance company to maintain statutory surplus. The equity balances going forward take into account the retained earnings reported by the Kanawha legacy business. The difference between total KMG reported GAAP equity (net of FAS 115 gains/losses) and GAAP equity attributed to Kanawha legacy activity is attributed to the new large case activity.

*** FAS 115 reflects the mark-to-market adjustment for available-for-sale securities that are included in other comprehensive income but are excluded from GAAP equity above.

17

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

Consolidated GAAP Balance Sheets
(in thousands, except share data)

	Quarter Ended
	3/31/2007		12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005
Assets:
Cash and cash equivalents	$	45,730	$	21,744	$	11,271	$	6,946	$	11,361	$	32,583	$	17,624	$	15,092
Investments		575,635		558,336		564,631		542,908		549,859		543,307		575,220		574,236
Total cash and investments		621,365		580,080		575,902		549,854		561,220		575,890		592,844		589,328
Accrued investment income		6,740		6,503		6,422		6,051		5,997		5,917		5,262		5,805
DAC		31,813		28,454		24,548		21,250		17,543		14,032		10,306		6,357
VOBA		69,671		70,766		70,794		70,760		71,761		72,639		72,743		73,101
Other assets *		139,995		145,911		144,247		146,782		137,395		128,887		120,968		114,939
Total assets	$	869,584	$	831,714	$	821,913	$	794,697	$	793,916	$	797,365	$	802,123	$	789,530
Liabilities and shareholders’ equity:
Total policy and contract liabilities	$	584,424	$	572,364	$	567,862	$	560,569	$	554,727	$	547,894	$	543,069	$	537,593
Deferred income taxes		13,707		14,735		14,404		7,165		10,822		13,061		12,256		12,230
Other liabilities **		88,800		52,563		49,680		50,611		47,284		48,927		59,024		45,296
Total liabilities		686,931		639,662		631,946		618,345		612,833		609,882		614,349		595,119
Total shareholders’ equity		182,653		192,052		189,967		176,352		181,083		187,483		187,774		194,411
Total liabilities and shareholders’ equity	$	869,584	$	831,714	$	821,913	$	794,697	$	793,916	$	797,365	$	802,123	$	789,530
Book value per share:
Basic	$	8.22	$	8.65	$	8.55	$	7.94	$	8.16	$	8.47	$	8.49	$	8.81
Diluted	$	8.22	$	8.61	$	8.55	$	7.93	$	8.16	$	8.47	$	8.49	$	8.80
Book value per share: (excluding unrealized capital gains (losses), net of taxes)
Basic	$	8.52	$	8.96	$	8.90	$	8.80	$	8.74	$	8.70	$	8.63	$	8.59
Diluted	$	8.52	$	8.93	$	8.90	$	8.78	$	8.74	$	8.70	$	8.63	$	8.57
Ending shares outstanding:
Basic		22,214		22,212		22,209		22,207		22,201		22,126		22,106		22,072
Diluted ***		22,214		22,299		22,209		22,241		22,203		22,131		22,106		22,105

*	Other assets include reinsurance balances recoverable, real estate and equipment, federal income tax recoverable and other assets.
**	Other liabilities include accounts payable and accrued expenses, outstanding bank debt, and other miscellaneous liabilities.
***	Diluted shares were calculated using the treasury stock method.

18

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT QUARTERLY RESULTS - (Unaudited)
(in thousands, except percentages)

Worksite insurance business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	29,194		$	22,260		$	23,703		$	19,326		$	18,507		$	15,736		$	15,106		$	15,028
Net investment income		2,051			1,954			1,868			1,764			1,595			1,602			1,537			1,603
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		161			259			41			50			46			42			40			41
Total revenues		31,406			24,473			25,612			21,140			20,148			17,380			16,683			16,672
Policyholder benefits		27,513			17,607			17,044			7,405			13,595			10,504			11,501			10,661
Insurance commissions, net of deferrals		2,683			2,216			1,902			1,563			1,521			1,015			848			801
Expenses, taxes, fees and depreciation		4,801			4,668			4,282			4,461			4,223			4,531			4,044			4,197
Amortization of DAC and VOBA (2)		1,615			270			1,139			526			778			831			1,113			894
Total benefits and expenses		36,612			24,761			24,367			13,955			20,117			16,881			17,506			16,553
Income (loss) before income taxes	$	(5,206	)	$	(288	)	$	1,245		$	7,185		$	31		$	499		$	(823	)	$	119
Benefit ratio (3)		94.2	%		79.1	%		71.9	%		38.3	%		73.5	%		66.8	%		76.1	%		70.9	%
Segment assets	$	179,721		$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166

	Quarter Ended
Senior market insurance business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	10,778		$	10,205		$	9,901		$	10,705		$	10,675		$	10,135		$	10,376		$	11,128
Net investment income		2,704			2,524			2,368			1,566			1,411			1,297			1,195			1,137
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		780			786			826			760			809			747			732			799
Total revenues		14,262			13,515			13,095			13,031			12,895			12,179			12,303			13,064
Policyholder benefits		7,752			6,007			7,432			46,763			8,535			8,989			8,845			9,176
Insurance commissions, net of deferrals		1,380			1,267			1,253			1,269			1,367			1,240			1,294			1,472
Expenses, taxes, fees and depreciation		731			744			715			734			765			770			1,098			988
Amortization of DAC and VOBA (2)		327			(37	)		648			504			472			150			(392	)		425
Total benefits and expenses		10,190			7,981			10,048			49,270			11,139			11,149			10,845			12,061
Income before income taxes	$	4,072		$	5,534		$	3,047		$	(36,239	)	$	1,756		$	1,030		$	1,458		$	1,003
Benefit ratio (3)		71.9	%		58.9	%		75.1	%		436.8	%		80.0	%		88.7	%		85.2	%		82.5	%
Segment assets	$	264,624		$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147

Refer to page 27 for footnote descriptions

19

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT QUARTERLY RESULTS - (Unaudited) (Continued)

(in thousands, except percentages)

	Quarter Ended
Acquired business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	(57	)	$	796		$	631		$	631		$	629		$	1,579		$	941		$	661
Net investment income		2,010			1,990			1,979			2,106			1,981			1,964			1,866			1,915
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		16			16			16			23			16			18			20			18
Total revenues		1,969			2,802			2,626			2,760			2,626			3,561			2,827			2,594
Policyholder benefits		2,277			2,315			1,709			(29,793	)		1,223			1,829			1,543			809
Insurance commissions, net of deferrals		89			90			91			91			94			99			98			103
Expenses, taxes, fees and depreciation		596			724			595			593			608			695			675			667
Amortization of DAC and VOBA (2)		140			(141	)		(106	)		125			(72	)		(276	)		(258	)		(105	)
Total benefits and expenses		3,102			2,988			2,289			(28,984	)		1,853			2,347			2,058			1,474
Income (loss) before income taxes	$	(1,133	)	$	(186	)	$	337		$	31,744		$	773		$	1,214		$	769		$	1,120
Benefit ratio (3)		-3994.7	%		290.8	%		270.8	%		-4721.6	%		194.4	%		115.8	%		164.0	%		122.4	%
Segment assets	$	159,761		$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620

	Quarter Ended
Third party administration business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		4,119			4,044			3,924			4,025			4,134			3,502			3,696			3,583
Other income		—			—			—			—			—			—			—			—
Total revenues		4,119			4,044			3,924			4,025			4,134			3,502			3,696			3,583
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		3,622			3,568			3,530			3,448			3,503			3,240			3,131			3,261
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		3,622			3,568			3,530			3,448			3,503			3,240			3,131			3,261
Income before income taxes	$	497		$	476		$	394		$	577		$	631		$	262		$	565		$	322
Profit margin (7)		12.1	%		11.8	%		10.0	%		14.3	%		15.3	%		7.5	%		15.3	%		9.0	%
Segment assets	$	8,549		$	9,756		$	6,689		$	10,142		$	10,063		$	11,103		$	10,327		$	8,304

Refer to page 27 for footnote descriptions

20

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT QUARTERLY RESULTS - (Unaudited) (Continued)

(in thousands, except percentages)

	Quarter Ended
Corporate and other	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005		6/30/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—	$	—
Net investment income		1,111			1,200			1,237			2,184			2,219			2,340			2,490		2,145
Commissions and fee income		49			107			94			92			85			50			78		88
Realized gains (losses)		(53	)		1,115			7			(115	)		211			34			278		19
Gain on unextinguished debt		—			1,021			—			—			—			—			—		—
Other income		102			208			391			90			115			89			407		121
Total revenues		1,209			3,651			1,729			2,251			2,630			2,513			3,253		2,373
Policyholder benefits		—			—			—			—			—			—			—		—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—		—
Expenses, taxes, fees and depreciation		4,739			4,646			3,638			3,977			3,949			3,406			3,251		3,992
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—		—
Total benefits and expenses		4,739			4,646			3,638			3,977			3,949			3,406			3,251		3,992
Income (loss) before income taxes	$	(3,530	)	$	(995	)	$	(1,909	)	$	(1,726	)	$	(1,319	)	$	(893	)	$	2	$	(1,619	)
Segment assets	$	256,929		$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785	$	227,294

Refer to page 27 for footnote descriptions

21

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT YEAR-TO-DATE RESULTS - (Unaudited)

(in thousands, except percentages)

	Year-to-Date
Worksite insurance business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	29,194		$	83,796		$	61,536		$	37,833		$	18,507		$	60,528		$	44,792		$	29,686
Net investment income		2,051			7,181			5,227			3,359			1,595			6,524			4,922			3,385
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		161			396			137			96			46			172			130			90
Total revenues		31,406			91,373			66,900			41,288			20,148			67,224			49,844			33,161
Policyholder benefits		27,513			55,651			38,044			21,000			13,595			43,556			33,052			21,551
Insurance commissions, net of deferrals		2,683			7,202			4,986			3,084			1,521			3,742			2,727			1,879
Expenses, taxes, fees and depreciation		4,801			17,634			12,966			8,684			4,223			16,327			11,796			7,752
Amortization of DAC and VOBA (2)		1,615			2,713			2,443			1,304			778			3,658			2,827			1,714
Total benefits and expenses		36,612			83,200			58,439			34,072			20,117			67,283			50,402			32,896
Income (loss) before income taxes	$	(5,206	)	$	8,173		$	8,461		$	7,216		$	31		$	(59	)	$	(558	)	$	265
Benefit ratio (3)		94.2	%		66.4	%		61.8	%		55.5	%		73.5	%		72.0	%		73.8	%		72.6	%
Segment assets	$	179,721		$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166

	Year-to-Date
Senior market insurance business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	10,778		$	41,486		$	31,281		$	21,380		$	10,675		$	42,240		$	32,105		$	21,729
Net investment income		2,704			7,869			5,345			2,977			1,411			4,641			3,344			2,149
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		780			3,181			2,395			1,569			809			2,935			2,188			1,456
Total revenues		14,262			52,536			39,021			25,926			12,895			49,816			37,637			25,334
Policyholder benefits		7,752			68,737			62,730			55,298			8,535			35,355			26,366			17,521
Insurance commissions, net of deferrals		1,380			5,156			3,889			2,636			1,367			5,495			4,255			2,961
Expenses, taxes, fees and depreciation		731			2,958			2,214			1,499			765			3,995			3,225			2,127
Amortization of DAC and VOBA (2)		327			1,587			1,624			976			472			554			404			796
Total benefits and expenses		10,190			78,438			70,457			60,409			11,139			45,399			34,250			23,405
Income (loss) before income taxes	$	4,072		$	(25,902	)	$	(31,436	)	$	(34,483	)	$	1,756		$	4,417		$	3,387		$	1,929
Benefit ratio (3)		71.9	%		165.7	%		200.5	%		258.6	%		80.0	%		83.7	%		82.1	%		80.6	%
Segment assets	$	264,624		$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147

Refer to page 27 for footnote descriptions

22

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT YEAR-TO-DATE RESULTS - (Unaudited) (Continued)
(in thousands, except percentages)

	Year-to-Date
Acquired business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	(57	)	$	2,687		$	1,891		$	1,260		$	629		$	4,119		$	2,540		$	1,599
Net investment income		2,010			8,056			6,066			4,087			1,981			7,808			5,844			3,978
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		16			71			55			39			16			69			51			31
Total revenues		1,969			10,814			8,012			5,386			2,626			11,996			8,435			5,608
Policyholder benefits		2,277			(24,546	)		(26,861	)		(28,570	)		1,223			5,376			3,547			2,004
Insurance commissions, net of deferrals		89			366			276			185			94			399			300			202
Expenses, taxes, fees and depreciation		596			2,520			1,796			1,201			608			2,741			2,046			1,371
Amortization of DAC and VOBA (2)		140			(194	)		(53	)		53			(72	)		(744	)		(468	)		(210	)
Total benefits and expenses		3,102			(21,854	)		(24,842	)		(27,131	)		1,853			7,772			5,425			3,367
Income (loss) before income taxes	$	(1,133	)	$	32,668		$	32,854		$	32,517		$	773		$	4,224		$	3,010		$	2,241
Benefit ratio (3)		-3994.7	%		-913.5	%		-1420.5	%		-2267.5	%		194.4	%		130.5	%		139.6	%		125.3	%
Segment assets	$	159,761		$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620

	Year-to-Date
Third party administration business:	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		4,119			16,127			12,083			8,159			4,134			14,264			10,762			7,066
Other income		—			—			—			—			—			—			—			—
Total revenues		4,119			16,127			12,083			8,159			4,134			14,264			10,762			7,066
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		3,622			14,049			10,481			6,951			3,503			12,838			9,598			6,467
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		3,622			14,049			10,481			6,951			3,503			12,838			9,598			6,467
Income before income taxes	$	497		$	2,078		$	1,602		$	1,208		$	631		$	1,426		$	1,164		$	599
Profit margin (6)		12.1	%		12.9	%		13.3	%		14.8	%		15.3	%		10.0	%		10.8	%		8.5	%
Segment assets	$	8,549		$	9,756		$	6,689		$	10,142		$	10,063		$	11,103		$	10,327		$	8,304

Refer to page 27 for footnote descriptions

23

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

REPORTED SEGMENT YEAR-TO-DATE RESULTS - (Unaudited) (Continued)
(in thousands, except percentages)

	Year-to-Date
Corporate and other	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		1,111			6,840			5,640			4,403			2,219			8,772			6,432			3,942
Commissions and fee income		49			378			271			177			85			301			251			173
Realized gains (losses)		(53	)		1,218			103			96			211			358			324			46
Gain on extinguishment of debt		—			1,021			—			—			—			—			—			—
Other income		102			804			596			205			115			688			599			192
Total revenues		1,209			10,261			6,610			4,881			2,630			10,119			7,606			4,353
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		4,739			16,210			11,564			7,926			3,949			13,519			10,113			6,862
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		4,739			16,210			11,564			7,926			3,949			13,519			10,113			6,862
Income (loss) before income taxes	$	(3,530	)	$	(5,949	)	$	(4,954	)	$	(3,045	)	$	(1,319	)	$	(3,400	)	$	(2,507	)	$	(2,509	)
Segment assets	$	256,929		$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785		$	227,294

Refer to page 27 for footnote descriptions

24

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

SALES - ISSUED NEW ANNUALIZED PREMIUMS (Unaudited)
(in thousands)

	Quarter Ended
	3/31/2007		12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005
Worksite insurance segment - Kanawha Legacy
Life	$	834	$	1,088	$	448	$	623	$	402	$	448	$	709	$	677
Cancer		466		487		360		441		486		504		542		430
Disability income		528		790		545		633		633		1,249		821		933
Other A&H		362		1,113		263		276		210		1,098		328		315
Total worksite - Kanawha Legacy		2,190		3,478		1,616		1,973		1,731		3,299		2,400		2,355
Worksite insurance segment - New Large Case Activity
Core Group Products:
Life	$	1,726	$	58	$	339	$	180	$	1,151	$	—	$	—	$	—
Stop loss		27,099		4,626		5,502		5,487		12,776		4,124		2,993		1,128
Disability income		1,353		3		269		40		149		—		—		—
Other A&H		—		—		—		—		—		—		—		—
Voluntary Benefit Products:
Life *		338		2,026		5,519		935		122		167		219		9
Cancer		59		260		20		64		41		125		18		80
Disability income		821		899		695		1,165		1,278		1,331		836		591
Other A&H		237		516		443		365		336		244		299		1
Total worksite - New Large Case Activity		31,633		8,387		12,787		8,236		15,853		5,991		4,365		1,809
Other Kanawha legacy sales
Long term care		43		45		60		52		303		260		360		549
Total sales	$	33,866	$	11,910	$	14,463	$	10,261	$	17,887	$	9,550	$	7,125	$	4,713

* Life sales for the third quarter 2006 include $5.3 million of annualized premium related to a small block acquisition (primarily voluntary term life policies).

25

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

SALES - ISSUED NEW ANNUALIZED PREMIUMS (Unaudited)
($ in thousands)

	Year-to-Date
	3/31/2007		12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005
Worksite insurance segment - Kanawha Legacy
Life	$	834	$	2,561	$	1,473	$	1,025	$	402	$	2,453	$	2,005	$	1,296
Cancer		466		1,774		1,287		927		486		1,984		1,480		938
Disability income		528		2,601		1,811		1,266		633		4,314		3,065		2,244
Other A&H		362		1,862		749		486		210		2,400		1,302		974
Total worksite - Kanawha Legacy		2,190		8,798		5,320		3,704		1,731		11,151		7,852		5,452
Worksite insurance segment - New Large Case Activity
Core Group Products:
Life	$	1,726	$	1,728	$	1,670	$	1,331	$	1,151	$	—	$	—	$	—
Stop loss		27,099		28,391		23,765		18,263		12,776		8,245		4,121		1,128
Disability income		1,353		461		458		189		149		—		—		—
Other A&H		—		—		—		—		—		—		—		—
Voluntary Benefit Products:
Life *		338		8,602		6,576		1,057		122		395		228		9
Cancer		59		385		125		105		41		223		98		80
Disability income		821		4,037		3,138		2,443		1,278		2,758		1,427		591
Other A&H		237		1,660		1,144		701		336		544		300		1
Total worksite - New Large Case Activity		31,633		45,263		36,876		24,089		15,853		12,165		6,174		1,809
Other Kanawha legacy sales
Long term care		43		460		415		355		303		1,616		1,356		996
Total sales	$	33,866	$	54,522	$	42,611	$	28,148	$	17,887	$	24,932	$	15,382	$	8,257

* Life sales for the nine and twelve months year-to-date 2006 include $5.3 million of annualized premium related to a small block acquisition (primarily voluntary term life policies).

26

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

List of footnote references:

(1)	Operating income is a non-GAAP measure, and is defined as net income excluding realized investment gains (losses), except for realized investment gains (losses) that are directly offset by executive deferred compensation expenses, net of taxes.
(2)	DAC: deferred acquisition costs; VOBA: value of business acquired.
(3)	Benefit ratio is defined as total policyholder benefits divided by total net premiums.
(4)	Expense ratio is defined as commissions, expenses and amortization of DAC/VOBA (on an operating income basis) divided by earned premiums plus commissions/fees.
(5)	Average portfolio yield is defined as net investment income divided by average invested assets, excluding the impact of unrealized gains (losses) plus average cash and equivalents.
(6)	Average cash/equivalents and short term assets include the portion of initial public offering proceeds that are invested in cash or fixed maturity securities maturing in less than two years.
(7)	Profit margin is defined as pretax income divided by commissions/fees.

27

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

APPENDIX – SEGMENT PRO FORMA RESULTS

Rationale for pro forma segment analysis

To supplement the financial statements presented on a GAAP basis, the Company has presented quarterly segment results on a pro forma basis, which is a non-GAAP measure. The second quarter 2006 reported segment results were impacted by the reallocation of portions of policy reserves and corresponding investment income between the Kanawha legacy reporting segments. When KMG America acquired Kanawha in December of 2004, an additional provision for adverse deviations related to all legacy business was added to policy reserves, and allocated primarily to the acquired business segment and a smaller amount to the life products included in the legacy portion of the worksite insurance business segment. Given the discontinuation of long term care sales activity combined with the uncertainty in the amount and timing in obtaining approvals for rate increases for long term care policies from state insurance regulators, the company has deemed it appropriate to reallocate much more of the initial provision for adverse deviations to the senior segment. The triggering event for implementing this reallocation of policy reserves as of June 30, 2006, was the implementation of the final reserve methodology which replaced the preliminary reserve methodology that had been in use since inception.

The result of the reallocation of reserves between Kanawha legacy segments was to increase reserves by $37.5 million in the senior segment, offset by reduced reserves of $31.2 million in the acquired segment and $6.3 million in the legacy portion of the worksite segment as of June 30, 2006. There was no impact to overall policy reserves or to reported earnings to date.

This reallocation of reserves between the Kanawha legacy segments distorts the second quarter 2006 reported policyholder benefits and the resulting reported benefit ratios by segment. To provide a meaningful period-over-period comparison by reporting segment, policy reserves and investment income contained in the segment results over the prior quarters have been reclassified on a pro forma basis in the attached financial tables and are also reflected in the subsequent discussion of segment results above.

A reconciliation of the non-GAAP pro forma adjustments is presented on pages 32-33.

28

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited)
(in thousands, except percentages)

Worksite - Kanawha Legacy:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	13,345		$	13,447		$	13,869		$	14,159		$	13,972		$	13,912		$	14,097		$	14,932
Net investment income		2,051			1,954			1,868			1,876			1,739			1,732			1,715			1,654
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		53			50			41			50			46			42			40			41
Total revenues		15,449			15,451			15,778			16,085			15,757			15,686			15,852			16,627
Policyholder benefits		10,140			9,270			9,240			9,964			10,241			9,327			10,838			10,551
Insurance commissions, net of deferrals		1,043			953			949			854			882			833			745			787
Expenses, taxes, fees and depreciation		2,361			2,269			2,113			2,323			2,271			2,539			2,414			2,503
Amortization of DAC and VOBA (2)		1,014			(21	)		809			332			584			766			992			894
Total benefits and expenses		14,558			12,471			13,111			13,473			13,978			13,465			14,989			14,735
Income before income taxes		891			2,980			2,667			2,612			1,779			2,221			863			1,892
(Provision) for income taxes		(312	)		(1,043	)		(933	)		(914	)		(623	)		(777	)		(302	)		(662	)
Operating income after tax	$	579		$	1,937		$	1,734		$	1,698		$	1,156		$	1,444		$	561		$	1,230
Benefit ratio (3)		76.0	%		68.9	%		66.6	%		70.4	%		73.3	%		67.0	%		76.9	%		70.7	%
Segment assets	$	153,789		$	155,017		$	156,015		$	156,794		$	157,983		$	160,712		$	161,457		$	161,556

Worksite - New Large Case Activity	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	15,849		$	8,813		$	9,834		$	5,167		$	4,535		$	1,824		$	1,009		$	96
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		108			209			—			—			—			—			—			—
Total revenues		15,957			9,022			9,834			5,167			4,535			1,824			1,009			96
Policyholder benefits		17,373			8,337			7,804			3,413			3,072			1,137			623			70
Insurance commissions, net of deferrals		1,640			1,263			953			709			639			182			103			14
Expenses, taxes, fees and depreciation		2,440			2,399			2,169			2,138			1,952			1,992			1,630			1,694
Amortization of DAC and VOBA (2)		601			291			330			194			194			65			121			—
Total benefits and expenses		22,054			12,290			11,256			6,454			5,857			3,376			2,477			1,778
Income (loss) before income taxes		(6,097	)		(3,268	)		(1,422	)		(1,287	)		(1,322	)		(1,552	)		(1,468	)		(1,682	)
(Provision) for income taxes		2,134			1,144			498			450			463			543			514			589
Operating income (loss) after tax	$	(3,963	)	$	(2,124	)	$	(924	)	$	(837	)	$	(859	)	$	(1,009	)	$	(954	)	$	(1,093	)
Benefit ratio (3)		109.6	%		94.6	%		79.4	%		66.1	%		67.7	%		62.3	%		61.7	%		72.9	%
Segment assets	$	25,932		$	15,744		$	11,934		$	7,132		$	4,738		$	—		$	—		$	—

Refer to page 27 for footnote descriptions

29

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited) - Continued
(in thousands, except percentages)

Senior market insurance business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	10,778		$	10,205		$	9,901		$	10,705		$	10,675		$	10,135		$	10,376		$	11,128
Net investment income		2,704			2,524			2,368			2,272			2,050			1,922			1,781			1,599
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		780			786			826			760			809			747			732			799
Total revenues		14,262			13,515			13,095			13,737			13,534			12,804			12,889			13,526
Policyholder benefits		7,752			6,007			7,432			8,381			7,641			8,482			8,339			8,670
Insurance commissions, net of deferrals		1,380			1,267			1,253			1,269			1,367			1,240			1,294			1,472
Expenses, taxes, fees and depreciation		731			744			715			734			765			770			1,098			988
Amortization of DAC and VOBA (2)		327			(37	)		648			504			472			150			(392	)		425
Total benefits and expenses		10,190			7,981			10,048			10,888			10,245			10,642			10,339			11,555
Income before income taxes		4,072			5,534			3,047			2,849			3,289			2,162			2,550			1,971
(Provision) for income taxes		(1,425	)		(1,937	)		(1,066	)		(997	)		(1,151	)		(757	)		(893	)		(690	)
Operating income after tax	$	2,647		$	3,597		$	1,981		$	1,852		$	2,138		$	1,405		$	1,658		$	1,281
Benefit ratio (3)		71.9	%		58.9	%		75.1	%		78.3	%		71.6	%		83.7	%		80.4	%		77.9	%
Segment assets	$	264,624		$	259,132		$	255,013		$	249,677		$	239,985		$	233,165		$	225,457		$	217,435

Acquired business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	(57	)	$	796		$	631		$	631		$	629		$	1,579		$	941		$	661
Net investment income		2,010			1,990			1,979			2,089			1,955			1,983			1,978			1,924
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		16			16			16			23			16			18			20			18
Total revenues		1,969			2,802			2,626			2,743			2,600			3,580			2,939			2,603
Policyholder benefits		2,277			2,315			1,709			2,617			2,399			2,376			2,089			1,355
Insurance commissions, net of deferrals		89			90			91			91			94			99			98			103
Expenses, taxes, fees and depreciation		596			724			595			593			608			695			675			667
Amortization of DAC and VOBA (2)		140			(141	)		(106	)		125			(72	)		(276	)		(258	)		(105	)
Total benefits and expenses		3,102			2,988			2,289			3,426			3,029			2,894			2,604			2,020
Income (loss) before income taxes		(1,133	)		(186	)		337			(683	)		(429	)		686			335			583
(Provision) for income taxes		397			65			(118	)		239			150			(240	)		(117	)		(204	)
Operating income (loss) after tax	$	(736	)	$	(121	)	$	219		$	(444	)	$	(279	)	$	446		$	218		$	379
Benefit ratio (3)		-3994.7	%		290.8	%		270.8	%		414.7	%		381.4	%		150.5	%		222.0	%		205.0	%
Segment assets	$	159,761		$	161,089		$	163,274		$	164,917		$	169,470		$	170,702		$	173,097		$	174,942

Refer to page 27 for footnote descriptions

30

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

PRO FORMA SEGMENT QUARTERLY OPERATING RESULTS (Unaudited) - Continued
(in thousands, except percentages)

Corporate and other:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		1,111			1,200			1,237			1,383			1,462			1,566			1,614			1,623
Commissions and fee income		49			107			94			92			85			50			78			88
Gain on extinguishment of debt (KMG new activity)		—			1,021			—			—			—			—			—			—
Other income		102			208			391			90			115			89			407			121
Total revenues		1,262			2,536			1,722			1,565			1,662			1,705			2,099			1,832
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation
Kanawha legacy		1,416			1,459			1,566			1,472			1,450			1,427			1,191			1,659
KMG new activity		3,265			2,923			1,891			2,566			2,302			1,866			1,919			2,333
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		4,681			4,382			3,457			4,038			3,752			3,293			3,110			3,992
Income before income taxes		(3,419	)		(1,846	)		(1,735	)		(2,473	)		(2,090	)		(1,588	)		(1,011	)		(2,160	)
(Provision) for income taxes		(5,621	)		635			609			881			752			594			410			856
Operating income after tax	$	(9,040	)	$	(1,211	)	$	(1,126	)	$	(1,592	)	$	(1,338	)	$	(994	)	$	(601	)	$	(1,304	)
Segment assets	$	256,929		$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785		$	227,294

Refer to page 27 for footnote descriptions

31

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

KMG America Corporation
Reconciliation of Pro Forma Operating Income, Consolidated Statements of Income, and Segment Assets (Unaudited)
(in thousands)

Worksite insurance business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
(loss) Income before taxes as reported in GAAP financial statements	$	(5,206	)	$	(288	)	$	1,245		$	7,185		$	31		$	499		$	(823	)	$	119
Pro forma adjustments:
Reallocation of investment income		—			—			—			112			144			130			178			51
Reallocation of policy reserves		—			—			—			(5,972	)		282			40			40			40
Subtotal		(5,206	)		(288	)		1,245			1,325			457			669			(605	)		210
less portion of Worksite attributed to new large case activity:		(6,097	)		(3,268	)		(1,422	)		(1,287	)		(1,322	)		(1,552	)		(1,468	)		(1,682	)
Pro forma income before taxes		891			2,980			2,667			2,612			1,779			2,221			863			1,892
Taxes @ 35%		(312	)		(1,043	)		(933	)		(914	)		(623	)		(777	)		(302	)		(662	)
Pro forma operating income after taxes - Worksite legacy	$	579		$	1,937		$	1,734		$	1,698		$	1,156		$	1,444		$	561		$	1,230
Assets as reported in GAAP financial statements	$	179,721		$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166
Reallocation of assets		—			—			—			—			(5,972	)		(5,690	)		(5,650	)		(5,610	)
less portion of Worksite attributed to new large case activity:		(25,932	)		(15,744	)		(11,934	)		(7,132	)		(4,738	)		—			—			—
Pro forma assets - Worksite legacy business	$	153,789		$	155,017		$	156,015		$	156,794		$	157,983		$	160,712		$	161,457		$	161,556

Senior market insurance business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
(loss) Income before taxes as reported in GAAP financial statements	$	4,072		$	5,534		$	3,047		$	(36,239	)	$	1,756		$	1,030		$	1,458		$	1,003
Pro forma adjustments:
Reallocation of investment income		—			—			—			706			639			625			586			462
Reallocation of policy reserves		—			—			—			38,382			894			507			506			506
Pro forma income before taxes		4,072			5,534			3,047			2,849			3,289			2,162			2,550			1,971
Taxes @ 35%		(1,425	)		(1,937	)		(1,066	)		(997	)		(1,151	)		(757	)		(893	)		(690	)
Pro forma operating income after taxes	$	2,647		$	3,597		$	1,981		$	1,852		$	2,138		$	1,405		$	1,658		$	1,281
Assets as reported in GAAP financial statements	$	264,624		$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147
Reallocation of assets		—			—			—			—			38,382			39,276			39,782			40,288
Pro forrma assets	$	264,624		$	259,132		$	255,013		$	249,677		$	239,985		$	233,165		$	225,457		$	217,435

Note: Pro forma reconciling adjustments reflect the reclassification of policy reserves, assets and corresponding investment income between the Kanawha legacy reporting segments that relate to the implementation of the final purchase GAAP reserves as if the implementation occurred as of December 31, 2004. The reclassifications by segment did not impact total company results.

32

KMG America Corporation
Quarterly Financial Supplement
First Quarter 2007

KMG America Corporation
Reconciliation of Pro Forma Operating Income, Consolidated Statements of Income, and Segment Assets (Unaudited) - Continued
(in thousands)

Acquired insurance business:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
(loss) Income before taxes as reported in GAAP financial statements	$	(1,133	)	$	(186	)	$	337		$	31,744		$	773		$	1,214		$	769		$	1,120
Pro forma adjustments:
Reallocation of investment income		—			—			—			(17	)		(26	)		19			112			9
Reallocation of policy reserves		—			—			—			(32,410	)		(1,176	)		(547	)		(546	)		(546	)
Pro forma income before taxes		(1,133	)		(186	)		337			(683	)		(429	)		686			335			583
Taxes @ 35%		397			65			(118	)		239			150			(240	)		(117	)		(204	)
Pro forma operating income (loss) after taxes	$	(736	)	$	(121	)	$	219		$	(444	)	$	(279	)	$	446		$	218		$	379
Assets as reported in GAAP financial statements	$	159,761		$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620
Reallocation of assets		—			—			—			—			(32,410	)		(33,586	)		(34,132	)		(34,678	)
Pro forrma assets	$	159,761		$	161,089		$	163,274		$	164,917		$	169,470		$	170,702		$	173,097		$	174,942

Corporate and Other:	Quarter Ended
	3/31/2007			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005
(loss) Income before taxes as reported in GAAP financial statements	$	(3,530	)	$	(995	)	$	(1,909	)	$	(1,726	)	$	(1,319	)	$	(893	)	$	2		$	(1,619	)
Reconciliation to pro forma operating income:
Exclude realized gains (losses)		53			(1,115	)		(7	)		115			(211	)		(34	)		(278	)		(19	)
Exclude offsetting deferred compensation expense *		58			264			181			(61	)		197			113			141			0
Reallocation of investment income		—			—			—			(801	)		(757	)		(774	)		(876	)		(522	)
Pro forma income before taxes		(3,419	)		(1,846	)		(1,735	)		(2,473	)		(2,090	)		(1,588	)		(1,011	)		(2,160	)
Taxes		(5,621	)		635			609			881			752			594			410			856
Pro forma operating income (loss) after taxes	$	(9,040	)	$	(1,211	)	$	(1,126	)	$	(1,592	)	$	(1,338	)	$	(994	)	$	(601	)	$	(1,304	)

*    Offsetting expense for realized gains(losses) related to executive deferred compensation trading activity

Note: Pro forma reconciling adjustments reflect the reclassification of policy reserves, assets and corresponding investment income between the Kanawha legacy reporting segments that relate to the implementation of the final purchase GAAP reserves as if the implementation occurred as of December 31, 2004. The reclassifications by segment did not impact total company results.

33