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):  March 12, 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 March 12, 2007, KMG America Corporation (the “Corporation”) issued a press release announcing fourth quarter 2006 and full-year 2006 results. The information contained in the press release, which is attached as Exhibit 99.1 to this report, is incorporated herein by reference. On March 12, 2007, the Corporation posted on its website the KMG America Corporation Quarterly Financial Supplement for Fourth Quarter 2006, which is attached as Exhibit 99.2 to this report, and is incorporated herein by reference. On March 12, 2007, the Corporation also held an investor web cast to discuss fourth quarter 2006 and full-year 2006 results. The manuscript for this web cast, which is attached as Exhibit 99.3 to this report, is incorporated herein by reference.

The information in this Form 8-K and the exhibits 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	Press release, issued on March 12, 2007, announcing KMG America Corporation’s fourth quarter 2006 and full-year 2006 results.
99.2	KMG America Corporation Quarterly Financial Supplement for Fourth Quarter 2006.
99.3	Manuscript for web cast held on March 12, 2007 discussing fourth quarter 2006 and full-year 2006 results.

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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 hereunto duly authorized.

		KMG AMERICA CORPORATION
		(Registrant)
Date: March 12, 2007	By:	/s/  James E. Nelson
		James E. Nelson
		Senior Vice President, General Counsel & Secretary

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EXHIBIT INDEX

Exhibit No.	Description of Exhibit
99.1	Press release, issued on March 12, 2007, announcing KMG America Corporation’s fourth quarter 2006 and full-year 2006 results.
99.2	KMG America Corporation Quarterly Financial Supplement for Fourth Quarter 2006.
99.3	Manuscript for web cast held on March 12, 2007 discussing fourth quarter 2006 and full-year 2006 results.

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EX-99.1

Exhibit 99.1

Press Release:

For Immediate Release

KMG America Reports Fourth Quarter 2006 Operating Income of $0.11 Per Share, Net Income of $0.13 Per Share

KMG America Will Host an Investor Web Cast Today, Monday, March 12th at 10:00 A.M. EDT

Minneapolis, MN, March 12, 2006 – KMG America Corporation (the “Company” or “KMG America”) (NYSE: KMA) today reported net income of $2.9 million, or $0.13 per diluted share for the fourth quarter of 2006, compared to net income for the fourth quarter of 2005 of $1.6 million, or $0.07 per diluted share. The Company reported operating income for the fourth quarter of $2.4 million, or $0.11 per diluted share, compared to operating income for the third quarter of 2006 of $2.1 million, or $0.10 per diluted share, and fourth quarter of 2005 operating income of $1.5 million, or $0.07 per diluted share.

On a year-to-date basis, the Company reported net income of $7.2 million, or $0.33 per diluted share for the full year of 2006 compared to $4.7 million, or $0.21 per diluted share for the full year of 2005. On an operating income basis, the Company reported $6.8 million, or $0.31 per diluted share for the full year of 2006 compared to $4.4 million, or $0.20 per diluted share for the full year of 2005.

KMG America’s Chief Executive Officer, Kenneth Kuk, commented, “Our fourth quarter operating income of $0.11 per share is above analysts’ expectations as well as our internal forecast. Net income of $.13 per share also exceeded expectations. This quarter’s results mark the eighth consecutive profitable quarter since KMA’s IPO with operating earnings up more than 60% compared to the fourth quarter of 2005, 12% compared to a strong third quarter of 2006 and up 55% for the full year compared to 2005. All sales and earnings indicators are steadily progressing in the right direction.”

FOURTH QUARTER FINANCIAL RESULTS

Fourth quarter 2006 operating income (see discussion of non-GAAP financial measures below) improved to $2.4 million compared to third quarter 2006 operating income of $2.1 million. Fourth quarter 2006 earnings results include some largely offsetting unusual items discussed in the following paragraphs. The Company experienced favorable results in the Kanawha legacy business due in part to a lower benefit ratio in its long-term care business compared to the third quarter of 2006. Amortization of DAC/VOBA (“deferred acquisition costs”/”value of business acquired”) also improved by $1.6 million in the fourth quarter of 2006 compared to the third quarter of 2006, due in part to the impact of improved persistency in the legacy Worksite segments. The favorable persistency experienced in the fourth quarter followed somewhat poor persistency in the third quarter of 2006. The fourth quarter of 2006 also includes a pretax benefit of $1.0 million related to the discount associated with retiring and replacing the Company’s $15 million subordinated note with bank debt.

Largely offsetting these favorable items is the Company’s decision to increase loss reserves on its stop loss business by $2.2 million pretax in the fourth quarter of 2006 related to claims that exceeded pro forma pricing expectations on cases written through 2006. The cases giving rise to excess stop loss reserves have since been re-priced or were not renewed. As a result of the compressed margins in the stop loss market to-date, the Company has decided to increase its pro forma loss ratio on its stop loss business starting in the first quarter of 2007. While the margins available in the stop loss market have not yet materialized at pricing expectations, the Company does see signs of the market firming heading into 2007 which the Company believes should result in more favorable margins going forward.

The discussion of operating earnings that follows has been segregated into earnings attributed to the Kanawha legacy business and the earnings of the new large case activity. The Company believes that segregating the earnings results of the new large case activity provides a more meaningful comparison of the underlying strength in the earnings produced by Kanawha’s legacy business. This earnings derivation is described later in “Notes on Financial Presentation”. The discussion below focuses on fourth quarter 2006 results compared to the third quarter 2006 results.

KANAWHA LEGACY ACTIVITY RESULTS

Operating income attributed to the Kanawha legacy business for the fourth quarter of 2006 was $5.7 million, or $0.26 per diluted share, up 33% compared to $4.3 million, or $0.19 per diluted share, reported in the third quarter of 2006. The increase was due primarily to the favorable results in the Company’s long term care book of business and a turnaround in persistency in the Company’s Worksite segment. The benefit ratio reported for the Kanawha legacy business for the fourth quarter of 2006 improved to 72.0% compared to 75.3% reported in the third quarter of 2006 due primarily to the favorable claims and reduced policy reserve increases in the Senior segment’s long term care business, including a $0.5 million one-time pretax correction to certain long term care policy reserve factors in the fourth quarter.

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Earned premiums reported in the Kanawha legacy business for the fourth quarter of 2006 were $24.4 million, essentially flat compared to the third quarter of 2006 as increases attributed to the impact of rate increases in the Senior segment were largely offset by declining premium in the legacy Worksite segment. It should be noted that reported premium in the legacy Worksite segment in the third quarter included a one-time $0.3 million benefit related to the indemnification from the previous owners of Kanawha Insurance Company.

Amortization of DAC/VOBA declined to a negative $0.2 million in the fourth quarter of 2006 compared to an increase of $1.4 million in the third quarter of 2006 due in part to the impact of a turnaround in persistency in the legacy Worksite segment that reduced the amortization of DAC/VOBA in the current quarter after accelerated amortization in the third quarter of 2006. Additionally, amortization of VOBA relating to long term care policies was reduced by $0.5 million pretax in the fourth quarter as the result of a one-time correction to the persistency adjustment.

While the Kanawha legacy business continues to provide a stable earnings pattern, it should be noted that earnings attributed to this business are generally stronger in the third and fourth quarters of a calendar year when compared to the first and second quarters of the year. This is due primarily to the distribution of long term care policy anniversaries that are weighted towards the first half of the year and the related impact of the timing of reserve increases. Also contributing to this seasonal earnings pattern are worksite sales and related earned premium revenue which tend to be weighted toward the end of the year .

NEW LARGE CASE ACTIVITY RESULTS

Operating losses attributed to the new large case activity increased to $3.4 million, or $0.15 per diluted share, compared to a loss of $2.2 million, or $0.09 per diluted share reported in the third quarter of 2006 due primarily to the $2.2 million increased loss reserves reported in the fourth quarter of 2006 related to adverse claims development in stop loss cases written through 2006, compared to the $0.9 million additional loss reserve added in the third quarter of 2006.

Premium revenue (net of reinsurance) for the fourth quarter of 2006 was $8.8 million compared to $9.8 million reported in the third quarter of 2006. The third quarter of 2006 premium included a $2.7 million initial reserve transfer related to the acquisition of a small block of life insurance policies on September 1, 2006. Excluding the impact of this initial reserve transfer, premium revenue for the fourth quarter of 2006 would have increased by $1.7 million, or 24% compared to the third quarter of 2006 due to increased sales activity.

Fourth quarter 2006 sales results (as measured by new annualized issued premiums) attributed to the new large case activity were $8.4 million, compared to $12.8 million reported in the third quarter of 2006, which included $5.3 million of annualized premium related to the small acquisition mentioned above. Excluding the small acquisition, voluntary benefit life sales for the fourth quarter of 2006 increased to $2.0 million compared to third quarter sales of $0.2 million. On a year-to-date basis, sales improved to $45.3 million compared to full year 2005 sales of $12.2 million.

The benefit ratio reported for the new large case activity in the fourth quarter of 2006 increased to 94.6% compared to the 79.4% reported in the third quarter of 2006. The benefit ratio for both periods were adversely impacted by increased loss reserves related to excess stop loss claims associated with historical cases written through 2006, which amounted to increased claim reserves of $2.2 million and $0.9 million in the fourth and third quarters of 2006, respectively.

Expenses for the fourth quarter of 2006 were $5.3 compared to $4.1 million reported in the third quarter of 2006, an increase of $1.2 million. Contributing factors include increased litigation expenses and increased production-related bonus accruals related to full year sales, which together added $1.1 million pretax to expenses in the fourth quarter.

The Company booked a non-recurring favorable benefit of $1.0 million pretax in the fourth quarter of 2006 related to the discount associated with retiring and replacing the Company’s $15 million subordinated note with bank debt. This discount was recorded in revenue as a gain on the extinguishment of debt.

STATISTICAL SUPPLEMENT AVAILABLE ON COMPANY WEBSITE

The statistical supplement can be accessed on the Company’s website of www.kmgamerica.com via the “Investor Relations” tab, “Financial Reports” tab, and found under the “Quarterly & Other Reports” section.

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A derivation of “normalized” earnings (a non-GAAP measure) is provided in the statistical supplement for the current and prior quarters to identify and remove unusual or temporary items and to help analysts and investors focus on recurring earnings trends. While this reporting basis requires management’s subjective judgment, the details are identified and described in detail so the investors and analysts can form their own opinions.

WEB CAST

The Company will host an investor and analyst web cast today, Monday, March 12, 2007, at 10:00 a.m. EDT. The web cast and replay will be available via the following links: www.kmgamerica.com, analyst/investor tab – for all investors; www.streetevents.com – for institutional investors; www.fulldisclosure.com – for retail investors. The replay will be available starting approximately 2 hours after the original web cast. The replay will be available through Monday, March 26, 2007.

ABOUT KMG AMERICA CORPORATION

KMG America is a holding company that was formed to acquire the Southeastern regional insurance company, Kanawha Insurance Company, and to operate and grow Kanawha’s insurance and other related businesses nationwide. KMG America offers a broad mix of individual and group insurance products and stop-loss coverage along with third-party administration services to employers and to working Americans. For more information visit: www.kmgamerica.com.

NOTES ON FINANCIAL PRESENTATION

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.

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

Presentation of Earnings Results:

During the first two years of operations, the Company has separated the financial performance of KMG America into two primary components: “Kanawha legacy activity” and “new large case activity”. This is done to highlight the strength of, and trends in, the Kanawha business activity that existed prior to the acquisition (Kanawha legacy activity), and segregate these results from the financial performance related to transforming KMG America into a new public company with a new national marketing focus (new large case activity). The financial results in the “new large case activity” include 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.

FORWARD LOOKING INFORMATION

This press release contains 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.

Contact: Tim Daniels

Ph: (952) 930-4807

tim.daniels@kmgamerica.com

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KMG America Corporation

Consolidated Statements of Income (unaudited)

(in thousands, except share data and percentages)

	Quarter Ended									Year-to-Date
	12/31/2006			9/30/2006			12/31/2005			12/31/2006			12/31/2005
Operating income (1):
Insurance premiums, net of reinsurance	$	33,261		$	34,235		$	27,450		$	127,969		$	106,888
Net investment income		7,668			7,453			7,203			29,946			27,745
Commission and fee income		4,151			4,018			3,553			16,505			14,565
Gain on extinguishment of debt		1,021			—			—			1,021			—
Other income		1,267			1,275			898			4,451			3,868
Total revenues		47,368			46,981			39,104			179,892			153,066
Policyholder benefits		25,929			26,186			21,322			99,842			84,288
Insurance commissions, net of deferrals		3,574			3,246			2,353			12,725			9,635
Expenses, taxes, fees and depreciation, net of deferrals		14,085			12,578			12,530			52,789			49,167
Amortization of DAC and VOBA (2)		91			1,682			706			4,106			3,468
Total benefits and expenses		43,679			43,692			36,911			169,462			146,558
Operating income before income taxes		3,689			3,289			2,193			10,430			6,508
(Provision) for income taxes		(1,303	)		(1,150	)		(730	)		(3,625	)		(2,092	)
Operating income		2,386			2,139			1,463			6,805			4,416
Operating income per share - diluted	$	0.11		$	0.10		$	0.07		$	0.31		$	0.20
Items excluded from operating income:
Realized investment gains (losses)		1,115			7			34			1,218			358
Deferred compensation expense adjustment (3)		(264	)		(181	)		(113	)		(581	)		(254	)
Cumulative effect of accounting changes		—			—			271			—			271
Total items excluded from operating income, before tax		851			(174	)		192			637			375
Income taxes, not applicable to operating income		(298	)		61			(67	)		(223	)		(131	)
Total items excluded from operating income, after tax		553			(113	)		125			414			244
Net income	$	2,939		$	2,026		$	1,588		$	7,219		$	4,660
Net income per share - diluted	$	0.13		$	0.09		$	0.07		$	0.33		$	0.21
Weighted-average shares outstanding - diluted:		22,213			22,208			22,110			22,202			22,091
Operating income split:
Kanawha legacy	$	5,747		$	4,293		$	3,685		$	17,179		$	13,039
New large case activity		(3,361	)		(2,153	)		(2,222	)		(10,374	)		(8,623	)
Total company	$	2,386		$	2,139		$	1,463		$	6,805		$	4,416
Operating income per share - diluted
Kanawha legacy	$	0.26		$	0.19		$	0.17		$	0.77		$	0.59
New large case activity	$	(0.15	)	$	(0.09	)	$	(0.10	)	$	(0.46	)	$	(0.39	)
Total company	$	0.11		$	0.10		$	0.07		$	0.31		$	0.20
Annualized operating return on average equity:
Kanawha legacy activity (4)		12.6	%		9.7	%		8.9	%		9.7	%		8.1	%
Total company		4.8	%		4.4	%		3.1	%		3.5	%		2.3	%

(1) Operating income is a non-GAAP measure, and is defined as net income excluding realized gains (losses), except for realized gains (losses) that are directly offset by executive deferred compensation expense, net of income taxes.

(2) DAC: deferred acquisition costs; VOBA: value of business acquired.

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

(4) Equity attributed to Kanawha legacy consists of the initial allocation of IPO proceeds of $155 million increased by retained earnings from the Kanawha legacy business.

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KMG America Corporation and Subsidiary

Consolidated Balance Sheets

(in thousands, except share data)

	December 31, 2006		December 31, 2005
	(Unaudited)
Assets:
Cash and cash equivalents	$	21,744	$	32,583
Investments		558,336		543,307
Total cash and investments		580,080		575,890
Accrued investment income		6,503		5,917
DAC		28,454		14,032
VOBA		70,766		72,639
Other assets (1)		145,911		128,887
Total assets	$	831,714	$	797,365
Liabilities and shareholders’ equity:
Total policy and contract liabilities	$	572,364	$	547,894
Deferred income taxes		14,735		13,061
Other liabilities (2)		52,563		48,927
Total liabilities		639,662		609,882
Total shareholders’ equity		192,052		187,483
Total liabilities and shareholders’ equity	$	831,714	$	797,365
Book value per share:
Basic	$	8.65	$	8.47
Diluted	$	8.61	$	8.47
Book value per share: (excl FAS 115) (3)
Basic	$	8.96	$	8.70
Diluted	$	8.93	$	8.70
Ending shares outstanding:
Basic		22,212		22,126
Diluted (4)		22,299		22,131

(1) Other assets include reinsurance balances recoverable, real estate and equipment, federal income tax recoverable and other assets.

(2) Other liabilities include accounts payable and accrued expenses, $14.1 million of outstanding bank debt.

(3) The book values are recalculated excluding $7.0 million of unrealized capital losses, net of taxes, on December 31, 2006. Unrealized capital losses were $5.0 million, net of taxes, on December 31, 2005.

(4) Diluted shares were calculated using the treasury stock method.

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KMG America Corporation

Statistical and Operating Data at or for the Periods Indicated - Unaudited

(in thousands, except percentages)

	Quarter Ended									Year-to-Date
	12/31/2006			9/30/2006			12/31/2005			12/31/2006			12/31/2005
SALES RESULTS (issued and paid for annualized premiums):
Worksite insurance segment - Kanawha legacy:
Life	$	1,088		$	448		$	448		$	2,561		$	2,453
Cancer		487			360			504			1,774			1,984
Disability income		790			545			1,249			2,601			4,314
Other A&H		1,113			263			1,098			1,862			2,400
Total worksite - Kanawha Legacy		3,478			1,616			3,299			8,798			11,151
Worksite insurance segment - New large case activity:
Core Group Products:
Life	$	58		$	339		$	—		$	1,728		$	—
Stop loss		4,626			5,502			4,124			28,391			8,245
Disability income		3			269			—			461			—
Other A&H		—			—			—			—			—
Voluntary Benefit Products:
Life (1)		2,026			5,519			167			8,602			395
Cancer		260			20			125			385			223
Disability income		899			695			1,331			4,037			2,758
Other A&H		516			443			244			1,660			544
Total worksite - New large case activity		8,387			12,787			5,991			45,263			12,165
Other Kanawha legacy sales:
Long term care		45			60			260			460			1,616
Total sales	$	11,910		$	14,463		$	9,550		$	54,522		$	24,932
OTHER KMG AMERICA KEY FINANCIAL INDICATORS:
Effective tax rate		35.3	%		34.9	%		33.4	%		34.8	%		32.3	%
Benefit ratio - total company (2):		78.0	%		76.5	%		77.7	%		78.0	%		78.9	%
Kanawha legacy only		72.0	%		75.3	%		78.8	%		77.5	%		79.3	%
New large case activity only		94.6	%		79.4	%		62.3	%		79.8	%		62.5	%
Expense ratio - total company (3):		47.4	%		45.8	%		50.3	%		48.2	%		51.3	%
Kanawha legacy only		38.0	%		42.8	%		39.4	%		40.2	%		40.4	%
New large case activity only		78.0	%		54.3	%		225.1	%		80.8	%		490.4	%
Average portfolio yield (4)		5.19	%		5.11	%		4.88	%		5.12	%		4.75	%
Average invested assets	$	552,980		$	544,679		$	495,358		$	536,738		$	484,763
Average cash/equivalents & short terms (4)		37,946			38,813			95,232			48,390			99,406
Total average cash and invested assets	$	590,925		$	583,492		$	590,591		$	585,129		$	584,169
Earned premiums and fees - total company:	$	37,412		$	38,253		$	31,003		$	144,474		$	121,453
Kanawha legacy only		28,599			28,419			29,179			116,125			118,524
New large case activity only		8,813			9,834			1,824			28,349			2,929

(1) Life sales for the third quarter 2006 and twelve months year-to-date 2006 include $5.3 million of life sales related to a small block acquisition effective September 1, 2006 (primarily voluntary term life policies).

(2) Benefit ratio is defined as total policyholder benefits divided by total net premiums.

(3) Expense ratio is defined as commissions, expenses and amortization of DAC/VOBA (on operating income basis) divided by earned premiums plus commissions/fees.

(4) Average portfolio yield is defined as net investment income divided by average invested assets, excluding the impact of FAS115 unrealized gains (losses) plus average cash and equivalents. Average cash/equivalents and short term assets include the portion of initial public offering proceeds that are invested short (less than 2 year maturities).

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EX-99.2

Exhibit 99.2

KMG America Corporation (KMA)

Quarterly Financial Supplement

Fourth Quarter 2006

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 March 12, 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.

Quarterly Financial Supplement
Fourth Quarter 2006
	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

Fourth Quarter 2006

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.

During the first two years of operations the financial performance of KMG America has been separated 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 Carolina’s);

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 AdministrationBusiness (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.”

1

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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	Stewart Johnson		212-381-9219
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

Fourth Quarter 2006

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.

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

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 is defined as [net income excluding 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. The purpose of deriving “normalized” earnings measures is to identify and remove unusual or temporary items in each quarter to help analysts and investors focus on recurring earnings trends. We have placed this derivation for the current and all prior quarters on pages 12-14 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.

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

Fourth Quarter 2006

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

	TOTAL COMPANY
	Quarter Ended
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	33,261		$	34,235		$	30,662		$	29,811		$	27,450		$	26,423		$	26,817		$	26,198
Net investment income		7,668			7,453			7,619			7,206			7,203			7,089			6,800			6,653
Commission and fee income		4,151			4,018			4,117			4,219			3,553			3,773			3,671			3,568
Gain on extinguishment of debt		1,021			—			—			—			—			—			—			—
Other income		1,267			1,275			923			986			898			1,200			978			792
Total revenues		47,368			46,981			43,321			42,222			39,104			38,485			38,266			37,211
Policyholder benefits		25,929			26,186			24,373			23,354			21,322			21,890			20,646			20,430
Insurance commissions, net of deferrals		3,574			3,246			2,924			2,981			2,353			2,239			2,377			2,666
Expenses, taxes, fees and depreciation, net of deferrals		14,085			12,578			13,274			12,852			12,530			12,058			13,103			11,476
Amortization of DAC and VOBA (2)		91			1,682			1,155			1,178			706			463			1,214			1,085
Total benefits and expenses		43,679			43,692			41,726			40,365			36,911			36,650			37,340			35,657
Operating income before income taxes		3,689			3,289			1,595			1,857			2,193			1,835			926			1,554
(Provision) for income taxes		(1,303	)		(1,150	)		(543	)		(630	)		(730	)		(586	)		(224	)		(552	)
Operating income		2,386			2,139			1,052			1,227			1,463			1,249			702			1,002
Items excluded from operating income:
Realized investment gains (losses)		1,115			7			(115	)		211			34			278			19			27
Deferred compensation expense adjustment		(264	)		(181	)		61			(197	)		(113	)		(141	)		—			—
Cumulative effect of accounting change		—			—			—			—			271			—			—			—
Total items excluded from operating income, before tax		851			(174	)		(54	)		14			192			137			19			27
Income taxes, not applicable to operating income		(298	)		61			19			(5	)		(67	)		(48	)		(7	)		(9	)
Total items excluded from operating income, after tax		553			(113	)		(35	)		9			125			89			12			18
Net income	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714		$	1,020
Earnings per share – fully diluted:
– net income	$	0.13		$	0.09		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03		$	0.05
– operating income	$	0.11		$	0.10		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03		$	0.05
Annual return on average equity (operating income basis)		4.8	%		4.4	%		2.2	%		2.5	%		3.1	%		2.6	%		1.5	%		2.1	%
Weighted-average shares outstanding – diluted:		22,213			22,208			22,218			22,138			22,110			22,094			22,072			22,156
Effective tax rate		35.3	%		34.9	%		34.0	%		33.9	%		33.4	%		32.2	%		24.4	%		35.5	%
Benefit ratio (3)		78.0	%		76.5	%		79.5	%		78.3	%		77.7	%		82.8	%		77.0	%		78.0	%
Expense ratio (4)		47.4	%		45.8	%		49.9	%		50.0	%		50.3	%		48.9	%		54.8	%		51.2	%
Average portfolio yield (5)		5.19	%		5.11	%		5.25	%		4.95	%		4.88	%		4.81	%		4.69	%		4.60	%
Average invested assets	$	552,980		$	544,679		$	532,746		$	519,669		$	495,358		$	482,435		$	485,978		$	473,352
Average cash/equivalents & short terms (6)		37,946			38,813			47,363			62,679			95,232			107,271			94,583			105,578
Total average cash and invested assets	$	590,925		$	583,492		$	580,109		$	582,348		$	590,591		$	589,707		$	580,562		$	578,929

Refer to page 27 for footnote descriptions

4

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	TOTAL COMPANY
	Year-to-Date
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	127,969		$	94,708		$	60,473		$	29,811		$	106,888		$	79,438		$	53,015		$	26,198
Net investment income		29,946			22,278			14,825			7,206			27,745			20,542			13,453			6,653
Commission and fee income		16,505			12,354			8,336			4,219			14,565			11,012			7,239			3,568
Gain on extinguishment of debt		1,021			—			—			—			—			—			—			—
Other income		4,451			3,184			1,909			986			3,868			2,970			1,770			792
Total revenues		179,892			132,524			85,543			42,222			153,066			113,962			75,477			37,211
Policyholder benefits		99,842			73,913			47,727			23,354			84,288			62,966			41,076			20,430
Insurance commissions, net of deferrals		12,725			9,151			5,905			2,981			9,635			7,282			5,043			2,666
Expenses, taxes, fees and depreciation, net of deferrals		52,789			38,704			26,126			12,852			49,167			36,637			24,579			11,476
Amortization of DAC and VOBA (2)		4,106			4,015			2,333			1,178			3,468			2,762			2,299			1,085
Total benefits and expenses		169,462			125,783			82,091			40,365			146,558			109,647			72,997			35,657
Operating income before income taxes		10,430			6,741			3,452			1,857			6,508			4,315			2,480			1,554
(Provision) for income taxes		(3,625	)		(2,323	)		(1,173	)		(630	)		(2,092	)		(1,362	)		(776	)		(552	)
Operating income		6,805			4,418			2,279			1,227			4,416			2,953			1,704			1,002
Items excluded from operating income:
Realized investment gains (losses)		1,218			103			96			211			358			324			46			27
Deferred compensation expense adjustment		(581	)		(317	)		(136	)		(197	)		(254	)		(141	)		—			—
Total items excluded from operating income, before tax		637			(214	)		(40	)		14			104			183			46			27
Income taxes, not applicable to operating income		(223	)		75			14			(5	)		(36	)		(64	)		(16	)		(9	)
Cumulative effect of accounting change, net of tax		—			—			—			—			176			—			—			—
Total items excluded from operating income, after tax		414			(139	)		(26	)		9			244			119			30			18
Net income	$	7,219		$	4,279		$	2,253		$	1,236		$	4,660		$	3,072		$	1,734		$	1,020
Earnings per share – fully diluted:
– net income	$	0.33		$	0.19		$	0.10		$	0.06		$	0.21		$	0.14		$	0.08		$	0.05
– operating income	$	0.31		$	0.20		$	0.10		$	0.06		$	0.20		$	0.13		$	0.08		$	0.05
Annual return on average equity (operating income basis)		3.5	%		3.0	%		2.4	%		2.5	%		2.3	%		2.1	%		1.8	%		2.1	%
Weighted-average shares outstanding – diluted:		22,202			22,199			22,197			22,138			22,091			22,084			22,106			22,156
Effective tax rate		34.8	%		34.4	%		34.0	%		33.9	%		32.2	%		31.7	%		31.4	%		35.5	%
Benefit ratio (3)		78.0	%		78.0	%		78.9	%		78.3	%		78.9	%		79.3	%		77.5	%		78.0	%
Expense ratio (4)		48.2	%		48.4	%		49.9	%		50.0	%		51.3	%		51.6	%		53.0	%		51.2	%
Average portfolio yield (5)		5.12	%		5.10	%		5.10	%		4.95	%		4.75	%		4.69	%		4.64	%		4.60	%
Average invested assets	$	536,738		$	532,174		$	525,911		$	519,669		$	484,763		$	477,893		$	477,699		$	473,352
Average cash/equivalents & short terms (6)		48,390			50,746			55,353			62,679			99,406			106,424			102,189			105,578
Total average cash and invested assets	$	585,129		$	582,920		$	581,264		$	582,348		$	584,169		$	584,318		$	579,888		$	578,929

Refer to page 27 for footnote descriptions

5

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	KANAWHA LEGACY ACTIVITY
	Quarter Ended
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	24,448		$	24,401		$	25,495		$	25,276		$	25,626		$	25,414		$	26,721		$	26,198
Net investment income		7,668			7,453			7,619			7,206			7,203			7,089			6,800			6,653
Commission and fee income		4,151			4,018			4,117			4,219			3,553			3,773			3,671			3,568
Gain on extinguishment of debt		—			—			—			—			—			—			—			—
Other income		1,058			1,275			923			986			898			1,200			978			792
Total revenues		37,325			37,147			38,154			37,687			37,280			37,476			38,170			37,211
Policyholder benefits		17,592			18,382			20,960			20,282			20,185			21,267			20,576			20,430
Insurance commissions, net of deferrals		2,311			2,293			2,215			2,342			2,171			2,136			2,363			2,666
Expenses, taxes, fees and depreciation, net of deferrals		8,763			8,518			8,570			8,598			8,672			8,509			9,076			9,030
Amortization of DAC and VOBA (2)		(200	)		1,352			961			984			641			342			1,214			1,085
Total benefits and expenses		28,466			30,545			32,706			32,206			31,669			32,254			33,229			33,211
Operating income before income taxes		8,859			6,602			5,448			5,481			5,611			5,222			4,941			4,000
(Provision) for income taxes		(3,112	)		(2,309	)		(1,891	)		(1,899	)		(1,926	)		(1,772	)		(1,630	)		(1,408	)
Operating income	$	5,747		$	4,293		$	3,557		$	3,583		$	3,685		$	3,451		$	3,311		$	2,592
Operating earnings per share – fully diluted:	$	0.26		$	0.19		$	0.16		$	0.16		$	0.17		$	0.16		$	0.15		$	0.12
Annual return on average equity (operating income basis)		12.6	%		9.7	%		8.2	%		8.4	%		8.9	%		8.5	%		8.3	%		6.6	%
Weighted-average shares outstanding – diluted:		22,213			22,208			22,218			22,138			22,110			22,094			22,072			22,156
Effective tax rate		35.1	%		35.0	%		34.7	%		34.6	%		34.3	%		33.9	%		33.0	%		35.2	%
Benefit ratio (3)		72.0	%		75.3	%		82.2	%		80.2	%		78.8	%		83.7	%		77.0	%		78.0	%
Expense ratio (4)		38.0	%		42.8	%		39.7	%		40.4	%		39.4	%		37.6	%		41.6	%		42.9	%

Refer to page 27 for footnote descriptions

6

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	KANAWHA LEGACY ACTIVITY
	Year-to-Date
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	99,620		$	75,172		$	50,771		$	25,276		$	103,959		$	78,333		$	52,919		$	26,198
Net investment income		29,946			22,278			14,825			7,206			27,745			20,542			13,453			6,653
Commission and fee income		16,505			12,354			8,336			4,219			14,565			11,012			7,239			3,568
Gain on extinguishment of debt		—			—			—			—			—			—			—			—
Other income		4,242			3,184			1,909			986			3,868			2,970			1,770			792
Total revenues		150,313			112,988			75,841			37,687			150,137			112,857			75,381			37,211
Policyholder benefits		77,216			59,624			41,242			20,282			82,458			62,273			41,006			20,430
Insurance commissions, net of deferrals		9,161			6,850			4,557			2,342			9,336			7,165			5,029			2,666
Expenses, taxes, fees and depreciation, net of deferrals		34,449			25,686			17,168			8,598			35,287			26,615			18,106			9,030
Amortization of DAC and VOBA (2)		3,097			3,297			1,945			984			3,282			2,641			2,299			1,085
Total benefits and expenses		123,923			95,457			64,912			32,206			130,363			98,694			66,440			33,211
Operating income before income taxes		26,390			17,531			10,929			5,481			19,774			14,163			8,941			4,000
(Provision) for income taxes		(9,211	)		(6,099	)		(3,790	)		(1,899	)		(6,735	)		(4,809	)		(3,037	)		(1,408	)
Operating income	$	17,179		$	11,432		$	7,139		$	3,583		$	13,039		$	9,354		$	5,904		$	2,592
Operating earnings per share – fully diluted:	$	0.77		$	0.51		$	0.32		$	0.16		$	0.59		$	0.42		$	0.27		$	0.12
Annual return on average equity (operating income basis)		9.7	%		8.8	%		8.3	%		8.4	%		8.1	%		7.8	%		7.5	%		6.6	%
Weighted-average shares outstanding – diluted:		22,202			22,199			22,197			22,138			22,091			22,084			22,106			22,156
Effective tax rate		34.9	%		34.8	%		34.7	%		34.6	%		34.1	%		34.0	%		34.0	%		35.2	%
Benefit ratio (3)		77.5	%		79.3	%		81.2	%		80.2	%		79.3	%		79.5	%		77.5	%		78.0	%
Expense ratio (4)		40.2	%		40.9	%		40.0	%		40.4	%		40.4	%		40.8	%		42.3	%		42.9	%

Refer to page 27 for footnote descriptions

7

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	NEW LARGE CASE ACTIVITY
	Quarter Ended
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	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		209			—			—			—			—			—			—			—
Total revenues		10,043			9,834			5,167			4,535			1,824			1,009			96			—
Policyholder benefits		8,337			7,804			3,413			3,072			1,137			623			70			—
Insurance commissions, net of deferrals		1,263			953			709			639			182			103			14			—
Expenses, taxes, fees and depreciation		5,322			4,060			4,704			4,254			3,858			3,549			4,027			2,446
Amortization of DAC and VOBA (2)		291			330			194			194			65			121			—			—
Total benefits and expenses		15,213			13,147			9,020			8,159			5,242			4,396			4,111			2,446
Income before income taxes		(5,170	)		(3,313	)		(3,853	)		(3,624	)		(3,418	)		(3,387	)		(4,015	)		(2,446	)
(Provision) for income taxes		1,810			1,160			1,349			1,268			1,196			1,185			1,405			856
Operating income	$	(3,361	)	$	(2,153	)	$	(2,504	)	$	(2,356	)	$	(2,222	)	$	(2,202	)	$	(2,610	)	$	(1,590	)
Operating income per share – diluted	$	(0.15	)	$	(0.09	)	$	(0.11	)	$	(0.10	)	$	(0.10	)	$	(0.10	)	$	(0.12	)	$	(0.07	)
Weighted-average shares outstanding:		22,213			22,208			22,218			22,138			22,110			22,094			22,072			22,156
Effective tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Benefit ratio (3)		94.6	%		79.4	%		66.1	%		67.7	%		62.3	%		61.7	%		72.9	%		NA
Expense ratio (4)		78.0	%		54.3	%		108.5	%		112.2	%		225.1	%		373.9	%		NA			NA

Refer to page 27 for footnote descriptions

8

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	NEW LARGE CASE ACTIVITY
	Year-to-Date
Operating income (1):	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	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		209			—			—			—			—			—			—			—
Total revenues		29,579			19,536			9,702			4,535			2,929			1,105			96			—
Policyholder benefits		22,626			14,289			6,485			3,072			1,830			693			70			—
Insurance commissions, net of deferrals		3,564			2,301			1,348			639			299			117			14			—
Expenses, taxes, fees and depreciation		18,340			13,018			8,958			4,254			13,880			10,022			6,473			2,446
Amortization of DAC and VOBA (2)		1,009			718			388			194			186			121			—			—
Total benefits and expenses		45,539			30,326			17,179			8,159			16,195			10,953			6,557			2,446
Income before income taxes		(15,960	)		(10,790	)		(7,477	)		(3,624	)		(13,266	)		(9,848	)		(6,461	)		(2,446	)
(Provision) for income taxes		5,586			3,777			2,617			1,268			4,643			3,447			2,261			856
Operating income	$	(10,374	)	$	(7,014	)	$	(4,860	)	$	(2,356	)	$	(8,623	)	$	(6,401	)	$	(4,200	)	$	(1,590	)
Operating income per share – diluted	$	(0.47	)	$	(0.31	)	$	(0.22	)	$	(0.10	)	$	(0.39	)	$	(0.29	)	$	(0.19	)	$	(0.07	)
Weighted-average shares outstanding:		22,202			22,199			22,197			22,138			22,091			22,084			22,106			22,156
Effective tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Benefit ratio (3)		79.8	%		73.1	%		66.8	%		67.7	%		62.5	%		62.7	%		72.9	%		NA
Expense ratio (4)		80.8	%		82.1	%		110.2	%		112.2	%		490.4	%		928.5	%		NA			NA

Refer to page 27 for footnote descriptions

9

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

CALCULATIONS OF DILUTED SHARES OUTSTANDING
(shares in actual amounts)

	Period Ended
	12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005
Ending shares:
Common shares outstanding – basic		22,211,589		22,209,093		22,206,703		22,200,828		22,125,998		22,105,775		22,071,641		22,071,641
Incremental shares to compute diluted		87,520		—		33,818		2,073		4,628		—		33,026		31,949
Common shares outstanding – diluted		22,299,109		22,209,093		22,240,521		22,202,901		22,130,626		22,105,775		22,104,667		22,103,590
Weighted average shares – year-to-date:
Common shares outstanding – basic		22,187,830		22,180,730		22,167,545		22,133,240		22,085,585		22,077,950		22,071,641		22,071,641
Incremental shares to compute diluted		13,901		17,978		29,704		4,838		5,359		5,724		34,778		84,098
Common shares outstanding – diluted		22,201,731		22,198,708		22,197,249		22,138,078		22,090,944		22,083,674		22,106,419		22,155,739
Weighted average shares – quarter only:
Common shares outstanding – basic		22,209,016		22,206,893		22,201,305		22,133,240		22,108,489		22,090,273		22,071,641		22,071,641
Incremental shares to compute diluted		4,241		1,088		16,330		4,838		1,819		3,581		—		84,098
Common shares outstanding – diluted		22,213,257		22,207,981		22,217,635		22,138,078		22,110,308		22,093,854		22,071,641		22,155,739

10

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

SHARE BASED COMPENSATION DETAIL
(all amounts in actual dollars)

	Period Ended
	12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005		12/31/2004
STOCK OPTION DETAILS:
Option shares outstanding (end of period)		1,913,425		1,787,175		1,759,425		1,415,750		1,413,750		1,446,250		1,402,750		1,370,250		1,246,000
Average exercise price	$	9.16	$	9.17	$	9.20	$	9.47	$	9.47	$	9.48	$	9.52	$	9.52	$	9.50
COMMON STOCK GRANT DETAILS:
Common stock grants outstanding (end of period)		139,948		137,452		135,062		129,187		54,357		34,134		NONE		NONE		NONE
Average grant price	$	8.32	$	8.31	$	8.33	$	8.34	$	8.86	$	8.83		NONE		NONE		NONE
SHARE BASED COMPENSATION EXPENSE:
Quarter only	$	379,014	$	371,855	$	324,062	$	303,951	$	20,401	$	10,375		NONE		NONE		NONE
Year-to-date	$	1,378,882	$	999,868	$	628,013	$	303,951	$	30,776	$	10,375		NONE		NONE		NONE

11

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

KMG – TOTAL COMPANY:	Quarter Ended
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	2,386		$	2,139		$	1,052		$	1,227		$	1,463		$	1,249		$	702		$	1,002
EPS – fully diluted	$	0.11		$	0.10		$	0.05		$	0.06		$	0.07		$	0.06		$	0.03		$	0.05
Annualized ROE *		4.8	%		4.4	%		2.2	%		2.5	%		3.1	%		2.6	%		1.5	%		2.1	%
Normalized operating earnings adjustments, after tax **	$	287		$	90		$	24		$	333		$	228		$	188		$	791		$	321
Normalized Adjusted Baseline
Operating income	$	2,673		$	2,230		$	1,076		$	1,560		$	1,691		$	1,437		$	1,493		$	1,324
EPS – fully diluted	$	0.12		$	0.10		$	0.05		$	0.07		$	0.08		$	0.07		$	0.07		$	0.06
Annualized ROE *		5.4	%		4.5	%		2.2	%		3.2	%		3.5	%		3.0	%		3.2	%		2.8	%

KANAWHA LEGACY ACTIVITY:	Quarter Ended
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	5,747		$	4,293		$	3,557		$	3,583		$	3,685		$	3,451		$	3,311		$	2,592
EPS	$	0.26		$	0.19		$	0.16		$	0.16		$	0.17		$	0.16		$	0.15		$	0.12
Annualized ROE *		12.6	%		9.7	%		8.2	%		8.4	%		8.9	%		8.5	%		8.3	%		6.6	%
Normalized operating earnings adjustments, after tax **	$	(745	)	$	(121	)	$	115		$	586		$	(50	)	$	(174	)	$	91		$	102
Normalized Adjusted Baseline
Operating income	$	5,002		$	4,172		$	3,671		$	4,169		$	3,635		$	3,276		$	3,402		$	2,695
EPS	$	0.23		$	0.19		$	0.17		$	0.19		$	0.16		$	0.15		$	0.15		$	0.12
Annualized ROE *		10.9	%		9.4	%		8.5	%		9.8	%		8.7	%		8.1	%		8.5	%		6.9	%

NEW LARGE CASE ACTIVITY:	Quarter Ended
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	(3,361	)	$	(2,153	)	$	(2,504	)	$	(2,356	)	$	(2,222	)	$	(2,202	)	$	(2,610	)	$	(1,590	)
EPS	$	(0.15	)	$	(0.09	)	$	(0.11	)	$	(0.10	)	$	(0.10	)	$	(0.10	)	$	(0.12	)	$	(0.07	)
Normalized operating earnings adjustments, after tax **	$	1,032		$	212		$	(91	)	$	(253	)	$	278		$	363		$	700		$	219
Normalized Adjusted Baseline
Operating income	$	(2,329	)	$	(1,942	)	$	(2,596	)	$	(2,608	)	$	(1,944	)	$	(1,839	)	$	(1,910	)	$	(1,371	)
EPS	$	(0.10	)	$	(0.09	)	$	(0.12	)	$	(0.12	)	$	(0.09	)	$	(0.08	)	$	(0.09	)	$	(0.06	)

*    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

Fourth Quarter 2006

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

KMG – TOTAL COMPANY:	Year-to-Date
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	6,805		$	4,418		$	2,279		$	1,227		$	4,416		$	2,953		$	1,704		$	1,002
EPS – fully diluted	$	0.31		$	0.20		$	0.10		$	0.06		$	0.20		$	0.13		$	0.08		$	0.05
Annualized ROE *		4.6	%		3.0	%		2.4	%		2.5	%		2.3	%		2.1	%		1.8	%		2.1	%
Normalized operating earnings adjustments, after tax **		734			447			357			333			1,559			1,282			919			219
Normalized Adjusted Baseline
Operating income	$	7,539		$	4,866		$	2,636		$	1,560		$	5,976		$	4,235		$	2,623		$	1,221
EPS – fully diluted	$	0.34		$	0.22		$	0.12		$	0.07		$	0.27		$	0.19		$	0.12		$	0.06
Annualized ROE *		5.1	%		3.3	%		2.7	%		3.2	%		3.1	%		3.0	%		2.8	%		2.6	%

KANAWHA LEGACY ACTIVITY:	Year-to-Date
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	17,179		$	11,432		$	7,139		$	3,583		$	13,039		$	9,354		$	5,904		$	2,592
EPS	$	0.77		$	0.51		$	0.32		$	0.16		$	0.59		$	0.42		$	0.27		$	0.12
Annualized ROE *		9.7	%		8.8	%		8.3	%		8.4	%		8.1	%		7.8	%		7.5	%		6.6	%
Normalized operating earnings adjustments, after tax **		(165	)		580			701			586			—			—			—			—
Normalized Adjusted Baseline
Operating income	$	17,014		$	12,012		$	7,840		$	4,169		$	13,039		$	9,354		$	5,904		$	2,592
EPS	$	0.77		$	0.54		$	0.35		$	0.19		$	0.59		$	0.42		$	0.27		$	0.12
Annualized ROE *		9.7	%		9.2	%		9.1	%		9.8	%		8.1	%		7.8	%		7.5	%		6.6	%

NEW LARGE CASE ACTIVITY:	Year-to-Date
Reported:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Operating income	$	(10,374	)	$	(7,014	)	$	(4,860	)	$	(2,356	)	$	(8,623	)	$	(6,401	)	$	(4,200	)	$	(1,590	)
EPS	$	(0.47	)	$	(0.31	)	$	(0.22	)	$	(0.10	)	$	(0.39	)	$	(0.29	)	$	(0.19	)	$	(0.07	)
Normalized operating earnings adjustments, after tax **	$	900		$	(132	)	$	(344	)	$	(253	)	$	1,559		$	1,282		$	919		$	219
Normalized Adjusted Baseline
Operating income	$	(9,474	)	$	(7,146	)	$	(5,204	)	$	(2,608	)	$	(7,064	)	$	(5,120	)	$	(3,281	)	$	(1,371	)
EPS	$	(0.43	)	$	(0.32	)	$	(0.23	)	$	(0.12	)	$	(0.32	)	$	(0.23	)	$	(0.15	)	$	(0.06	)

*    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

Fourth Quarter 2006

DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS - $ in thousands

		Quarter Ended
		12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005		3/31/2005
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.		(516	)		210			214			123			(50	)		(174	)		91		102
LTC reserves (e)	Legacy – senior		(229	)		76			76			76			—			—			—		—
Subtotal Kanawha legacy adjustments			(745	)		(121	)		115			586			(50	)		(174	)		91		102
Excess stop loss claims (f)	Large case – worksite		1,162			255			(482	)		(530	)		(266	)		(178	)		40		—
Discount on subordinated note payoff (g)	Large case – corporate		(581	)		83			83			83			83			83			83		83
Miscellaneous expenses (h)	Large case – worksite		180			(60	)		(60	)		(60	)		—			—			—		—
Short-term initial expenses (i)	Large case – corporate		270			(66	)		368			254			461			458			577		136
Subtotal new large case activity adjustments			1,032			212			(91	)		(253	)		278			363			700		219
Total quarterly normalization adjustments, after-tax		$	287		$	90		$	24		$	333		$	228		$	188		$	791	$	321
Year-to-date summary of normalized adjustments, after-tax
Kanawha legacy adjustments		$	(165	)	$	580		$	701		$	586		$	—		$	—		$	—	$	—
New large case activity adjustments			900			(132	)		(344	)		(253	)		1,559			1,282			919		219
Total year-to-date normalization adjustments, after-tax		$	734		$	447		$	357		$	333		$	1,559		$	1,282		$	919	$	219

See pages 15-16 for description of each adjustment.

14

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

DETAILS ON NORMALIZING OPERATING EARNINGS ADJUSTMENTS (continued)

Description of unusual items:

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 loss reserves in excess of pricing of $2.2 million in the fourth quarter of 2006 and $850,000 in the third quarter of 2006. Since these increased loss reserves relate to 2005 and early 2006 cases, these excess loss reserves have been spread back to earlier quarters to better align with the premium recognition of those same cases in the periods earned. Over time, as the stop loss book increases in size, claims experience is expected to be less volatile. 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. Miscellaneous expenses – the Company incurred additional expense accruals in the fourth quarter of 2006 of $370,000 pretax related to bonus accruals payable to sales reps and producers that were earned over the course of the year.

i. 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 pre-tax 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 adjustment for federal securities law compliance expenses relates to costs the Company incurred in 2005 and 2006 over and above its estimate of $600,000 of annualized ongoing costs for compliance in 2007 and later when such costs are expected to stabilize.

15

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
2Q05	$	225		$	—		$	—		$	—		$	56		$	56		$	56		$	56		$	—
3Q05		(1,408	)		—			—			(352	)		(352	)		(352	)		(352	)		—			—
4Q05		(717	)		—			(179	)		(179	)		(179	)		(179	)		—			—			—
1Q06		(1,766	)		(442	)		(442	)		(442	)		(442	)		—			—			—			—
2Q06		407			136			136			136			—			—			—			—			—
3Q06		(105	)		(53	)		(53	)		—			—			—			—			—			—
4Q06		(59	)		(59	)		—			—			—			—			—			—			—
Aggregate gains		404			36			80			96			101			66			21			6			—
Subtotal “incurred”		(3,019	)		(382	)		(458	)		(741	)		(815	)		(409	)		(274	)		62			—
Actual excess claims booked		(3,019	)		(2,169	)		(850	)		—			—			—			—			—			—
Adjustment to reported (pretax)					1,787			392			(741	)		(815	)		(409	)		(274	)		62			—
Adjustment to reported (aftertax)				$	1,162		$	255		$	(482	)	$	(530	)	$	(266	)	$	(178	)	$	40		$	—
				Quarter Ended
Dynamic VOBA adjustments	Adjustment			12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
3Q05	$	383		$	—		$	—		$	—		$	—		$	—		$	128		$	128		$	128
4Q05		118			—			—			—			—			30			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			—			—			—			—
Subtotal “incurred”		1,007			115			169			144			126			41			115			140			157
Actual dynamic adjustment reported		1,007			908			(154	)		(186	)		(63	)		118			383			—			—
Adjustment to reported (pretax)					(793	)		323			330			189			(77	)		(268	)		140			157
Adjustment to reported (aftertax)				$	(516	)	$	210		$	214		$	123		$	(50	)	$	(174	)	$	91		$	102

16

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

Development of GAAP Equity for ROE Calculations:
$ in thousands

	Quarter Ended
KMG – total company:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005			12/31/2004
KMG reported net income – quarter only	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714		$	1,020		$	—
Reported GAAP equity		192,052			189,967			176,352			181,083			187,483			187,774			194,411			184,440			187,788
Excluding FAS 115 g/(l) ***		(7,053	)		(7,790	)		(19,008	)		(12,935	)		(4,995	)		(3,096	)		4,889			(4,368	)		—
GAAP equity excluding FAS 115 – ending ***		199,105			197,757			195,360			194,018			192,478			190,870			189,522			188,808			187,788
GAAP equity excluding FAS 115 – average quarter only ***		198,431			196,558			194,689			193,248			191,674			190,196			189,165			188,298			—
GAAP equity excluding FAS 115 – year-to-date ***		195,744			194,903			193,952			193,248			189,893			189,247			188,706			188,298			—
Kanawha legacy activity:
Net income – quarter only *	$	6,300		$	4,180		$	3,521		$	3,592		$	3,810		$	3,540		$	3,324		$	2,610		$	—
Attributed GAAP equity **		185,876			179,576			175,396			171,875			168,283			164,473			160,934			157,610			155,000
Attributed GAAP equity – average quarter only		182,726			177,486			173,635			170,079			166,378			162,703			159,272			156,305			—
Attributed GAAP equity – year-to-date		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 ***		199,105			197,757			195,360			194,018			192,478			190,870			189,522			188,808			187,788
Less GAAP equity attributed to Kanawha legacy		(185,876	)		(179,576	)		(175,396	)		(171,875	)		(168,283	)		(164,473	)		(160,934	)		(157,610	)		(155,000	)
Equals GAAP equity attributed to new large case activity		13,229			18,181			19,964			22,144			24,195			26,397			28,588			31,198			32,788
Attributed GAAP equity – average quarter only		15,705			19,073			21,054			23,169			25,296			27,493			29,893			31,993			—
Attributed GAAP equity – year-to-date		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	$	2,939		$	2,026		$	1,017		$	1,236		$	1,588		$	1,338		$	714		$	1,020		$	—
Less Large case new activity operating income		(3,361	)		(2,153	)		(2,504	)		(2,356	)		(2,222	)		(2,202	)		(2,610	)		(1,590	)		—
Kanawha legacy net income (retained earnings)	$	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

Fourth Quarter 2006

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

	Quarter Ended
	12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005
Assets:
Cash and cash equivalents	$	21,744	$	11,271	$	6,946	$	11,361	$	32,583	$	17,624	$	15,092	$	41,929
Investments		558,336		564,631		542,908		549,859		543,307		575,220		574,236		530,669
Total cash and investments		580,080		575,902		549,854		561,220		575,890		592,844		589,328		572,598
Accrued investment income		6,503		6,422		6,051		5,997		5,917		5,262		5,805		5,223
DAC		28,454		24,548		21,250		17,543		14,032		10,306		6,357		3,015
VOBA		70,766		70,794		70,760		71,761		72,639		72,743		73,101		73,740
Other assets *		145,911		144,247		146,782		137,395		128,887		120,968		114,939		113,584
Total assets	$	831,714	$	821,913	$	794,697	$	793,916	$	797,365	$	802,123	$	789,530	$	768,160
Liabilities and shareholders’ equity:
Total policy and contract liabilities	$	572,364	$	567,862	$	560,569	$	554,727	$	547,894	$	543,069	$	537,593	$	533,778
Deferred income taxes		14,735		14,404		7,165		10,822		13,061		12,256		12,230		6,224
Other liabilities **		52,563		49,680		50,611		47,284		48,927		59,024		45,296		43,718
Total liabilities		639,662		631,946		618,345		612,833		609,882		614,349		595,119		583,720
Total shareholders’ equity		192,052		189,967		176,352		181,083		187,483		187,774		194,411		184,440
Total liabilities and shareholders’ equity	$	831,714	$	821,913	$	794,697	$	793,916	$	797,365	$	802,123	$	789,530	$	768,160
Book value per share:
Basic	$	8.65	$	8.55	$	7.94	$	8.16	$	8.47	$	8.49	$	8.81	$	8.36
Diluted	$	8.61	$	8.55	$	7.93	$	8.16	$	8.47	$	8.49	$	8.80	$	8.34
Book value per share: (excluding unrealized
capital gains (losses), net of taxes)
Basic	$	8.96	$	8.90	$	8.80	$	8.74	$	8.70	$	8.63	$	8.59	$	8.55
Diluted	$	8.93	$	8.90	$	8.78	$	8.74	$	8.70	$	8.63	$	8.57	$	8.54
Ending shares outstanding:
Basic		22,212		22,209		22,207		22,201		22,126		22,106		22,072		22,072
Diluted ***		22,299		22,209		22,241		22,203		22,131		22,106		22,105		22,104

* 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

Fourth Quarter 2006

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

	Quarter Ended
Worksite insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	22,260		$	23,703		$	19,326		$	18,507		$	15,736		$	15,106		$	15,028		$	14,658
Net investment income		1,954			1,868			1,764			1,595			1,602			1,537			1,603			1,782
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		259			41			50			46			42			40			41			49
Total revenues		24,473			25,612			21,140			20,148			17,380			16,683			16,672			16,489
Policyholder benefits		17,607			17,044			7,405			13,595			10,504			11,501			10,661			10,890
Insurance commissions, net of deferrals		2,216			1,902			1,563			1,521			1,015			848			801			1,078
Expenses, taxes, fees and depreciation		4,668			4,282			4,461			4,223			4,531			4,044			4,197			3,555
Amortization of DAC and VOBA (2)		270			1,139			526			778			831			1,113			894			820
Total benefits and expenses		24,761			24,367			13,955			20,117			16,881			17,506			16,553			16,343
Income before income taxes	$	(288	)	$	1,245		$	7,185		$	31		$	499		$	(823	)	$	119		$	146
Benefit ratio (3)		79.1	%		71.9	%		38.3	%		73.5	%		66.8	%		76.1	%		70.9	%		74.3	%
Segment assets	$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166		$	168,714
	Quarter Ended
Senior market insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	10,205		$	9,901		$	10,705		$	10,675		$	10,135		$	10,376		$	11,128		$	10,601
Net investment income		2,524			2,368			1,566			1,411			1,297			1,195			1,137			1,012
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		786			826			760			809			747			732			799			657
Total revenues		13,515			13,095			13,031			12,895			12,179			12,303			13,064			12,270
Policyholder benefits		6,007			7,432			46,763			8,535			8,989			8,845			9,176			8,345
Insurance commissions, net of deferrals		1,267			1,253			1,269			1,367			1,240			1,294			1,472			1,489
Expenses, taxes, fees and depreciation		744			715			734			765			770			1,098			988			1,139
Amortization of DAC and VOBA (2)		(37	)		648			504			472			150			(392	)		425			371
Total benefits and expenses		7,981			10,048			49,270			11,139			11,149			10,845			12,061			11,344
Income before income taxes	$	5,534		$	3,047		$	(36,239	)	$	1,756		$	1,030		$	1,458		$	1,003		$	926
Benefit ratio (3)		58.9	%		75.1	%		436.8	%		80.0	%		88.7	%		85.2	%		82.5	%		78.7	%
Segment assets	$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147		$	168,486

Refer to page 27 for footnote descriptions

19

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Quarter Ended
Acquired business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	796		$	631		$	631		$	629		$	1,579		$	941		$	661		$	938
Net investment income		1,990			1,979			2,106			1,981			1,964			1,866			1,915			2,063
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		16			16			23			16			18			20			18			13
Total revenues		2,802			2,626			2,760			2,626			3,561			2,827			2,594			3,014
Policyholder benefits		2,315			1,709			(29,793	)		1,223			1,829			1,543			809			1,195
Insurance commissions, net of deferrals		90			91			91			94			99			98			103			99
Expenses, taxes, fees and depreciation		724			595			593			608			695			675			667			704
Amortization of DAC and VOBA (2)		(141	)		(106	)		125			(72	)		(276	)		(258	)		(105	)		(105	)
Total benefits and expenses		2,988			2,289			(28,984	)		1,853			2,347			2,058			1,474			1,893
Income before income taxes	$	(186	)	$	337		$	31,744		$	773		$	1,214		$	769		$	1,120		$	1,121
Benefit ratio (3)		290.8	%		270.8	%		-4721.6%			194.4	%		115.8	%		164.0	%		122.4	%		127.4	%
Segment assets	$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620		$	212,188
	Quarter Ended
Third party administration business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		4,044			3,924			4,025			4,134			3,502			3,696			3,583			3,483
Other income		—			—			—			—			—			—			—			—
Total revenues		4,044			3,924			4,025			4,134			3,502			3,696			3,583			3,483
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		3,568			3,530			3,448			3,503			3,240			3,131			3,261			3,206
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		3,568			3,530			3,448			3,503			3,240			3,131			3,261			3,206
Income before income taxes	$	476		$	394		$	577		$	631		$	262		$	565		$	322		$	277
Profit margin (6)		11.8	%		10.0	%		14.3	%		15.3	%		7.5	%		15.3	%		9.0	%		8.0	%
Segment assets	$	9,756		$	6,689		$	10,142		$	10,063		$	11,103		$	10,327		$	8,304		$	8,406

Refer to page 27 for footnote descriptions

20

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Quarter Ended
Corporate and other:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005		6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—	$	—		$	—
Net investment income		1,200			1,237			2,184			2,219			2,340			2,490		2,145			1,797
Commissions and fee income		107			94			92			85			50			78		88			85
Realized gains (losses)		1,115			7			(115	)		211			34			278		19			27
Gain on unextinguished debt		1,021			—			—			—			—			—		—			—
Other income		208			391			90			115			89			407		121			71
Total revenues		3,651			1,729			2,251			2,630			2,513			3,253		2,373			1,980
Policyholder benefits		—			—			—			—			—			—		—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—		—			—
Expenses, taxes, fees and depreciation		4,646			3,638			3,977			3,949			3,406			3,251		3,992			2,870
Amortization of DAC and VOBA (2)		—			—			—			—			—			—		—			—
Total benefits and expenses		4,646			3,638			3,977			3,949			3,406			3,251		3,992			2,870
Income (loss) before income taxes	$	(995	)	$	(1,909	)	$	(1,726	)	$	(1,319	)	$	(893	)	$	2	$	(1,619	)	$	(890	)
Segment assets	$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785	$	227,294		$	210,366

Refer to page 27 for footnote descriptions

21

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Year-to-Date
Worksite insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	83,796		$	61,536		$	37,833		$	18,507		$	60,528		$	44,792		$	29,686		$	14,658
Net investment income		7,181			5,227			3,359			1,595			6,524			4,922			3,385			1,782
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		396			137			96			46			172			130			90			49
Total revenues		91,373			66,900			41,288			20,148			67,224			49,844			33,161			16,489
Policyholder benefits		55,651			38,044			21,000			13,595			43,556			33,052			21,551			10,890
Insurance commissions, net of deferrals		7,202			4,986			3,084			1,521			3,742			2,727			1,879			1,078
Expenses, taxes, fees and depreciation		17,634			12,966			8,684			4,223			16,327			11,796			7,752			3,555
Amortization of DAC and VOBA (2)		2,713			2,443			1,304			778			3,658			2,827			1,714			820
Total benefits and expenses		83,200			58,439			34,072			20,117			67,283			50,402			32,896			16,343
Income before income taxes	$	8,173		$	8,461		$	7,216		$	31		$	(59	)	$	(558	)	$	265		$	146
Benefit ratio (3)		66.4	%		61.8	%		55.5	%		73.5	%		72.0	%		73.8	%		72.6	%		74.3	%
Segment assets	$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166		$	168,714
	Year-to-Date
Senior market insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	41,486		$	31,281		$	21,380		$	10,675		$	42,240		$	32,105		$	21,729		$	10,601
Net investment income		7,869			5,345			2,977			1,411			4,641			3,344			2,149			1,012
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		3,181			2,395			1,569			809			2,935			2,188			1,456			657
Total revenues		52,536			39,021			25,926			12,895			49,816			37,637			25,334			12,270
Policyholder benefits		68,737			62,730			55,298			8,535			35,355			26,366			17,521			8,345
Insurance commissions, net of deferrals		5,156			3,889			2,636			1,367			5,495			4,255			2,961			1,489
Expenses, taxes, fees and depreciation		2,958			2,214			1,499			765			3,995			3,225			2,127			1,139
Amortization of DAC and VOBA (2)		1,587			1,624			976			472			554			404			796			371
Total benefits and expenses		78,438			70,457			60,409			11,139			45,399			34,250			23,405			11,344
Income before income taxes	$	(25,902	)	$	(31,436	)	$	(34,483	)	$	1,756		$	4,417		$	3,387		$	1,929		$	926
Benefit ratio (3)		165.7	%		200.5	%		258.6	%		80.0	%		83.7	%		82.1	%		80.6	%		78.7	%
Segment assets	$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147		$	168,486

Refer to page 27 for footnote descriptions

22

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Year-to-Date
Acquired business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	2,687		$	1,891		$	1,260		$	629		$	4,119		$	2,540		$	1,599		$	938
Net investment income		8,056			6,066			4,087			1,981			7,808			5,844			3,978			2,063
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		71			55			39			16			69			51			31			13
Total revenues		10,814			8,012			5,386			2,626			11,996			8,435			5,608			3,014
Policyholder benefits		(24,546	)		(26,861	)		(28,570	)		1,223			5,376			3,547			2,004			1,195
Insurance commissions, net of deferrals		366			276			185			94			399			300			202			99
Expenses, taxes, fees and depreciation		2,520			1,796			1,201			608			2,741			2,046			1,371			704
Amortization of DAC and VOBA (2)		(194	)		(53	)		53			(72	)		(744	)		(468	)		(210	)		(105	)
Total benefits and expenses		(21,854	)		(24,842	)		(27,131	)		1,853			7,772			5,425			3,367			1,893
Income before income taxes	$	32,668		$	32,854		$	32,517		$	773		$	4,224		$	3,010		$	2,241		$	1,121
Benefit ratio (3)		-913.5	%		-1420.5	%		-2267.5	%		194.4	%		130.5	%		139.6	%		125.3	%		127.4	%
Segment assets	$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620		$	212,188
	Year-to-Date
Third party administration business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		16,127			12,083			8,159			4,134			14,264			10,762			7,066			3,483
Other income		—			—			—			—			—			—			—			—
Total revenues		16,127			12,083			8,159			4,134			14,264			10,762			7,066			3,483
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		14,049			10,481			6,951			3,503			12,838			9,598			6,467			3,206
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		14,049			10,481			6,951			3,503			12,838			9,598			6,467			3,206
Income before income taxes	$	2,078		$	1,602		$	1,208		$	631		$	1,426		$	1,164		$	599		$	277
Profit margin (6)		12.9	%		13.3	%		14.8	%		15.3	%		10.0	%		10.8	%		8.5	%		8.0	%
Segment assets	$	9,756		$	6,689		$	10,142		$	10,063		$	11,103		$	10,327		$	8,304		$	8,406

Refer to page 27 for footnote descriptions

23

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Year-to-Date
Corporate and other:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		6,840			5,640			4,403			2,219			8,772			6,432			3,942			1,797
Commissions and fee income		378			271			177			85			301			251			173			85
Realized gains (losses)		1,218			103			96			211			358			324			46			27
Gain on extinguishment of debt		1,021			—			—			—			—			—			—			—
Other income		804			596			205			115			688			599			192			71
Total revenues		10,261			6,610			4,881			2,630			10,119			7,606			4,353			1,980
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation		16,210			11,564			7,926			3,949			13,519			10,113			6,862			2,870
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		16,210			11,564			7,926			3,949			13,519			10,113			6,862			2,870
Income (loss) before income taxes	$	(5,949	)	$	(4,954	)	$	(3,045	)	$	(1,319	)	$	(3,400	)	$	(2,507	)	$	(2,509	)	$	(890	)
Segment assets	$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785		$	227,294		$	210,366

Refer to page 27 for footnote descriptions

24

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)

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

	Quarter Ended
	12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005
Worksite insurance segment – Kanawha Legacy
Life	$	1,088	$	448	$	623	$	402	$	448	$	709	$	677	$	619
Cancer		487		360		441		486		504		542		430		508
Disability income		790		545		633		633		1,249		821		933		1,311
Other A&H		1,113		263		276		210		1,098		328		315		659
Total worksite – Kanawha Legacy		3,478		1,616		1,973		1,731		3,299		2,400		2,355		3,097
Worksite insurance segment – New Large Case Activity
Core Group Products:
Life	$	58	$	339	$	180	$	1,151	$	—	$	—	$	—	$	—
Stop loss		4,626		5,502		5,487		12,776		4,124		2,993		1,128		—
Disability income		3		269		40		149		—		—		—		—
Other A&H		—		—		—		—		—		—		—		—
Voluntary Benefit Products:
Life *		2,026		5,519		935		122		167		219		9		—
Cancer		260		20		64		41		125		18		80		—
Disability income		899		695		1,165		1,278		1,331		836		591		—
Other A&H		516		443		365		336		244		299		1		—
Total worksite – New Large Case Activity		8,387		12,787		8,236		15,853		5,991		4,365		1,809		—
Other Kanawha legacy sales
Long term care		45		60		52		303		260		360		549		447
Total sales	$	11,910	$	14,463	$	10,261	$	17,887	$	9,550	$	7,125	$	4,713	$	3,544

*    Life sales for the third quarter 2006 results 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

Fourth Quarter 2006

Statistical and Operating Data at or for the Periods Indicated
(in thousands, except percentages)

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

	Year-to-Date
	12/31/2006		9/30/2006		6/30/2006		3/31/2006		12/31/2005		9/30/2005		6/30/2005		3/31/2005
Worksite insurance segment – Kanawha Legacy
Life	$	2,561	$	1,473	$	1,025	$	402	$	2,453	$	2,005	$	1,296	$	619
Cancer		1,774		1,287		927		486		1,984		1,480		938		508
Disability income		2,601		1,811		1,266		633		4,314		3,065		2,244		1,311
Other A&H		1,862		749		486		210		2,400		1,302		974		659
Total worksite – Kanawha Legacy		8,798		5,320		3,704		1,731		11,151		7,852		5,452		3,097
Worksite insurance segment – New Large Case Activity
Core Group Products:
Life	$	1,728	$	1,670	$	1,331	$	1,151	$	—	$	—	$	—	$	—
Stop loss		28,391		23,765		18,263		12,776		8,245		4,121		1,128		—
Disability income		461		458		189		149		—		—		—		—
Other A&H		—		—		—		—		—		—		—		—
Voluntary Benefit Products:
Life *		8,602		6,576		1,057		122		395		228		9		—
Cancer		385		125		105		41		223		98		80		—
Disability income		4,037		3,138		2,443		1,278		2,758		1,427		591		—
Other A&H		1,660		1,144		701		336		544		300		1		—
Total worksite – New Large Case Activity		45,263		36,876		24,089		15,853		12,165		6,174		1,809		—
Other Kanawha legacy sales
Long term care		460		415		355		303		1,616		1,356		996		447
Total sales	$	54,522	$	42,611	$	28,148	$	17,887	$	24,932	$	15,382	$	8,257	$	3,544

*    Life sales for the twelve months year-to-date 2006 results 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

Fourth Quarter 2006

List of footnotes 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 2 years.

(7) Profit margin is defined as pretax income divided by commissions/fees.

27

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

Fourth Quarter 2006

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

	Quarter Ended
Worksite – Kanawha Legacy:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	13,447		$	13,869		$	14,159		$	13,972		$	13,912		$	14,097		$	14,932		$	14,658
Net investment income		1,954			1,868			1,876			1,739			1,732			1,715			1,654			1,621
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		50			41			50			46			42			40			41			49
Total revenues		15,451			15,778			16,085			15,757			15,686			15,852			16,627			16,328
Policyholder benefits		9,270			9,240			9,964			10,241			9,327			10,838			10,551			10,850
Insurance commissions, net of deferrals		953			949			854			882			833			745			787			1,078
Expenses, taxes, fees and depreciation		2,269			2,113			2,323			2,271			2,539			2,414			2,503			2,695
Amortization of DAC and VOBA (2)		(21	)		809			332			584			766			992			894			820
Total benefits and expenses		12,471			13,111			13,473			13,978			13,465			14,989			14,735			15,443
Income before income taxes		2,980			2,667			2,612			1,779			2,221			863			1,892			885
(Provision) for income taxes		(1,043	)		(933	)		(914	)		(623	)		(777	)		(302	)		(662	)		(310	)
Operating income after tax	$	1,937		$	1,734		$	1,698		$	1,156		$	1,444		$	561		$	1,230		$	575
Benefit ratio (3)		68.9	%		66.6	%		70.4	%		73.3	%		67.0	%		76.9	%		70.7	%		74.0	%
Segment assets	$	155,017		$	156,015		$	156,794		$	157,983		$	160,712		$	161,457		$	161,556		$	163,144
	Quarter Ended
Worksite – New Large Case Activity:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	8,813		$	9,834		$	5,167		$	4,535		$	1,824		$	1,009		$	96		$	—
Net investment income		—			—			—			—			—			—			—			—
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		209			—			—			—			—			—			—			—
Total revenues		9,022			9,834			5,167			4,535			1,824			1,009			96			—
Policyholder benefits		8,337			7,804			3,413			3,072			1,137			623			70			—
Insurance commissions, net of deferrals		1,263			953			709			639			182			103			14			—
Expenses, taxes, fees and depreciation		2,399			2,169			2,138			1,952			1,992			1,630			1,694			860
Amortization of DAC and VOBA (2)		291			330			194			194			65			121			—			—
Total benefits and expenses		12,290			11,256			6,454			5,857			3,376			2,477			1,778			860
Income before income taxes		(3,268	)		(1,422	)		(1,287	)		(1,322	)		(1,552	)		(1,468	)		(1,682	)		(860	)
(Provision) for income taxes		1,144			498			450			463			543			514			589			301
Operating income after tax	$	(2,124	)	$	(924	)	$	(837	)	$	(859	)	$	(1,009	)	$	(954	)	$	(1,093	)	$	(559	)
Benefit ratio (3)		94.6	%		79.4	%		66.1	%		67.7	%		62.3	%		61.7	%		72.9	%		NA
Segment assets	$	15,744		$	11,934		$	7,132		$	4,738		$	—		$	—		$	—		$	—

Refer to page 27 for footnote descriptions

29

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Quarter Ended
Senior market insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	10,205		$	9,901		$	10,705		$	10,675		$	10,135		$	10,376		$	11,128		$	10,601
Net investment income		2,524			2,368			2,272			2,050			1,922			1,781			1,599			1,454
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		786			826			760			809			747			732			799			657
Total revenues		13,515			13,095			13,737			13,534			12,804			12,889			13,526			12,712
Policyholder benefits		6,007			7,432			8,381			7,641			8,482			8,339			8,670			7,839
Insurance commissions, net of deferrals		1,267			1,253			1,269			1,367			1,240			1,294			1,472			1,489
Expenses, taxes, fees and depreciation		744			715			734			765			770			1,098			988			1,139
Amortization of DAC and VOBA (2)		(37	)		648			504			472			150			(392	)		425			371
Total benefits and expenses		7,981			10,048			10,888			10,245			10,642			10,339			11,555			10,838
Income before income taxes		5,534			3,047			2,849			3,289			2,162			2,550			1,971			1,874
(Provision) for income taxes		(1,937	)		(1,066	)		(997	)		(1,151	)		(757	)		(893	)		(690	)		(656	)
Operating income after tax	$	3,597		$	1,981		$	1,852		$	2,138		$	1,405		$	1,658		$	1,281		$	1,218
Benefit ratio (3)		58.9	%		75.1	%		78.3	%		71.6	%		83.7	%		80.4	%		77.9	%		73.9	%
Segment assets	$	259,132		$	255,013		$	249,677		$	239,985		$	233,165		$	225,457		$	217,435		$	209,281
	Quarter Ended
Acquired business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	796		$	631		$	631		$	629		$	1,579		$	941		$	661		$	938
Net investment income		1,990			1,979			2,089			1,955			1,983			1,978			1,924			1,917
Commissions and fee income		—			—			—			—			—			—			—			—
Other income		16			16			23			16			18			20			18			13
Total revenues		2,802			2,626			2,743			2,600			3,580			2,939			2,603			2,868
Policyholder benefits		2,315			1,709			2,617			2,399			2,376			2,089			1,355			1,741
Insurance commissions, net of deferrals		90			91			91			94			99			98			103			99
Expenses, taxes, fees and depreciation		724			595			593			608			695			675			667			704
Amortization of DAC and VOBA (2)		(141	)		(106	)		125			(72	)		(276	)		(258	)		(105	)		(105	)
Total benefits and expenses		2,988			2,289			3,426			3,029			2,894			2,604			2,020			2,439
Income before income taxes		(186	)		337			(683	)		(429	)		686			335			583			429
(Provision) for income taxes		65			(118	)		239			150			(240	)		(117	)		(204	)		(150	)
Operating income after tax	$	(121	)	$	219		$	(444	)	$	(279	)	$	446		$	218		$	379		$	279
Benefit ratio (3)		290.8	%		270.8	%		414.7	%		381.4	%		150.5	%		222.0	%		205.0	%		185.6	%
Segment assets	$	161,089		$	163,274		$	164,917		$	169,470		$	170,702		$	173,097		$	174,942		$	176,963

Refer to page 27 for footnote descriptions

30

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Quarter Ended
Corporate and other:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Insurance premiums, net of reinsurance	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Net investment income		1,200			1,237			1,383			1,462			1,566			1,614			1,623			1,662
Commissions and fee income		107			94			92			85			50			78			88			85
Gain on extinguishment of debt (KMG new activity)		1,021			—			—			—			—			—			—			—
Other income		208			391			90			115			89			407			121			71
Total revenues		2,536			1,722			1,565			1,662			1,705			2,099			1,832			1,818
Policyholder benefits		—			—			—			—			—			—			—			—
Insurance commissions, net of deferrals		—			—			—			—			—			—			—			—
Expenses, taxes, fees and depreciation
Kanawha legacy		1,459			1,566			1,472			1,450			1,427			1,191			1,659			1,284
KMG new activity		2,923			1,891			2,566			2,302			1,866			1,919			2,333			1,586
Amortization of DAC and VOBA (2)		—			—			—			—			—			—			—			—
Total benefits and expenses		4,382			3,457			4,038			3,752			3,293			3,110			3,992			2,870
Income before income taxes		(1,846	)		(1,735	)		(2,473	)		(2,090	)		(1,588	)		(1,011	)		(2,160	)		(1,052	)
(Provision) for income taxes		635			609			881			752			594			410			856			361
Operating income after tax	$	(1,211	)	$	(1,126	)	$	(1,592	)	$	(1,338	)	$	(994	)	$	(601	)	$	(1,304	)	$	(691	)
Segment assets	$	230,975		$	228,987		$	206,034		$	211,677		$	221,683		$	231,785		$	227,294		$	210,366

Refer to page 27 for footnote descriptions

31

KMG America Corporation

Quarterly Financial Supplement

Fourth Quarter 2006

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

	Quarter Ended
Worksite insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Income (loss) before taxes as reported in GAAP financial statements	$	(288	)	$	1,245		$	7,185		$	31		$	499		$	(823	)	$	119		$	146
Pro forma adjustments:
Reallocation of investment income		—			—			112			144			130			178			51			(161	)
Reallocation of policy reserves		—			—			(5,972	)		282			40			40			40			40
Subtotal		(288	)		1,245			1,325			457			669			(605	)		210			25
less portion of Worksite attributed to new large case activity:		(3,268	)		(1,422	)		(1,287	)		(1,322	)		(1,552	)		(1,468	)		(1,682	)		(860	)
Pro forma income before taxes		2,980			2,667			2,612			1,779			2,221			863			1,892			885
Taxes @ 35%		(1,043	)		(933	)		(914	)		(623	)		(777	)		(302	)		(662	)		(310	)
Pro forma operating income after taxes – Worksite legacy	$	1,937		$	1,734		$	1,698		$	1,156		$	1,444		$	561		$	1,230		$	575
Assets as reported in GAAP financial statements	$	170,761		$	167,949		$	163,926		$	168,693		$	166,402		$	167,107		$	167,166		$	168,714
Reallocation of assets		—			—			—			(5,972	)		(5,690	)		(5,650	)		(5,610	)		(5,570	)
less portion of Worksite attributed to new large case activity:		(15,744	)		(11,934	)		(7,132	)		(4,738	)		—			—			—			—
Pro forma assets – Worksite legacy business	$	155,017		$	156,015		$	156,794		$	157,983		$	160,712		$	161,457		$	161,556		$	163,144
	Quarter Ended
Senior market insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Income (loss) before taxes as reported in GAAP financial statements	$	5,534		$	3,047		$	(36,239	)	$	1,756		$	1,030		$	1,458		$	1,003		$	926
Pro forma adjustments:
Reallocation of investment income		—			—			706			639			625			586			462			442
Reallocation of policy reserves		—			—			38,382			894			507			506			506			506
Pro forma income before taxes		5,534			3,047			2,849			3,289			2,162			2,550			1,971			1,874
Taxes @ 35%		(1,937	)		(1,066	)		(997	)		(1,151	)		(757	)		(893	)		(690	)		(656	)
Pro forma operating income after taxes	$	3,597		$	1,981		$	1,852		$	2,138		$	1,405		$	1,658		$	1,281		$	1,218
Assets as reported in GAAP financial statements	$	259,132		$	255,013		$	249,677		$	201,603		$	193,889		$	185,675		$	177,147		$	168,486
Reallocation of assets		—			—			—			38,382			39,276			39,782			40,288			40,795
Pro forrma assets	$	259,132		$	255,013		$	249,677		$	239,985		$	233,165		$	225,457		$	217,435		$	209,281

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

Fourth Quarter 2006

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

	Quarter Ended
Acquired insurance business:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Income (loss) before taxes as reported in GAAP financial statement	$	(186	)	$	337		$	31,744		$	773		$	1,214		$	769		$	1,120		$	1,121
Pro forma adjustments:
Reallocation of investment income		—			—			(17	)		(26	)		19			112			9			(146	)
Reallocation of policy reserves		—			—			(32,410	)		(1,176	)		(547	)		(546	)		(546	)		(546	)
Pro forma income before taxes		(186	)		337			(683	)		(429	)		686			335			583			429
Taxes @ 35%		65			(118	)		239			150			(240	)		(117	)		(204	)		(150	)
Pro forma operating income after taxes	$	(121	)	$	219		$	(444	)	$	(279	)	$	446		$	218		$	379		$	279
Assets as reported in GAAP financial statements	$	161,089		$	163,274		$	164,917		$	201,880		$	204,288		$	207,229		$	209,620		$	212,188
Reallocation of assets		—			—			—			(32,410	)		(33,586	)		(34,132	)		(34,678	)		(35,225	)
Pro forrma assets	$	161,089		$	163,274		$	164,917		$	169,470		$	170,702		$	173,097		$	174,942		$	176,963
	Quarter Ended
Corporate and Other:	12/31/2006			9/30/2006			6/30/2006			3/31/2006			12/31/2005			9/30/2005			6/30/2005			3/31/2005
Income (loss) before taxes as reported in GAAP financial statement	$	(995	)	$	(1,909	)	$	(1,726	)	$	(1,319	)	$	(893	)	$	2		$	(1,619	)	$	(890	)
Reconciliation to pro forma operating income:
Exclude realized gains (losses)		(1,115	)		(7	)		115			(211	)		(34	)		(278	)		(19	)		(27	)
Exclude offsetting deferred compensation expense *		264			181			(61	)		197			113			141			0			0
Reallocation of investment income		—			—			(801	)		(757	)		(774	)		(876	)		(522	)		(135	)
Pro forma income before taxes		(1,846	)		(1,735	)		(2,473	)		(2,090	)		(1,588	)		(1,011	)		(2,160	)		(1,052	)
Taxes		635			609			881			752			594			410			856			361
Pro forma operating income after taxes	$	(1,211	)	$	(1,126	)	$	(1,592	)	$	(1,338	)	$	(994	)	$	(601	)	$	(1,304	)	$	(691	)

*    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

EX-99.3