Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes__  No___

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

The aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates as of June 30, 2009,2010, the last business day of Registrant’s most recently completed second fiscal quarter was $20,836,787.$23,770,814.

Portions of the definitive proxy statement that Registrant intends to file pursuant to Regulation 14(A) by a date no later than 120 days after December 31, 2009,2010, to be used in connection with the annual meeting of shareholders, are incorporated herein by reference into Part III hereof.  If such definitive proxy statement is not filed in the 120-day period, the information called for by Part III will be filed as an amendment to this Form 10-K not later than the end of the 120-day period.

The insurance company operation is conducted through Crusader.  Crusader is a multiple line property and casualty insurance company that began transacting business on January 1, 1985.  Since 2004, all Crusader business has been written in the state of California.  During the year ended December 31, 2009,2010, approximately 98% of Crusader’s business was commercial multiple peril policies.  Commercial multiple peril policies provide a combination of property and liability coverage for businesses.  Commercial property coverage insures against loss or damage to buildings, inventory and equipment from natural disasters, including hurricanes, windstorms, hail, water, explosions, severe winter weather, and other events such as theft and vandalism, fires, storms, and financial loss due to business interruption resulting from covered property damage.  However, Crusader does not write earthquake coverage.  Commercial liability coverages insurecoverage insures against third party liability from accidents occurring on the insured’s premises or arising out of its operation.  In addition to commercial multiple peril policies, Crusader also writes separate policies to insure commercial property and commercial liability risks on a mono-line basis.  AsCrusader is domiciled in California and as of December 31, 2009,2010, Crusader was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington.

 

All of Crusader’s business is produced by Unifax Insurance Systems, Inc. (Unifax), its sister corporation.  Unifax has substantial experience with these classes of business.  The commissions paid by Crusader to Unifax are eliminated as intercompany transactions and are not reflected in the previous table.  Crusader is licensed in property and casualty and disability lines of insurance by the California Department of Insurance.

A reinsurance transaction occurs when an insurance company transfers (cedes) a portion of its exposure on policies written by it to a reinsurer that assumes that risk for a premium (ceded premium).  Reinsurance does not legally discharge the Company from primary liability under its policies.  If the reinsurer fails to meet its obligations, the Company must nonetheless pay its policy obligations.

Crusader’s primary excess of loss reinsurance agreements since January 1, 1998, are as follows:

Prior to January 1, 1998, National Reinsurance Corporation (acquired by General Reinsurance Corporation in 1996) charged a provisional rate on exposures up to $500,000 that was subject to adjustment and was based on the amount of losses ceded, limited by a maximum percentage that could be charged.  That provisionally rated treaty was cancelled on a runoff basis and replaced by a flat rated treaty on January 1, 1998.

Crusader also has catastrophe reinsurance from various highly rated California authorized and unauthorized reinsurance companies.  These reinsurance agreements help protect Crusader against liabilities in excess of certain retentions, including major or catastrophic losses that may occur from any one or more of the property and/or casualty risks which Crusader insures.  The Company has no reinsurance recoverable balances in dispute.

The Company evaluates each of its ceded reinsurance contracts at theirits inception to determine if there is sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature.  As of December 31, 2009,2010, all such ceded contracts are accounted for as risk transfer reinsurance.

The aggregate amount of earned premium ceded to the reinsurers was $7,427,236 for the year ended December 31, 2010, $9,276,407 for the year ended December 31, 2009, and $8,771,069 for the year ended December 31, 2008, and $11,532,308 for the year ended December 31, 2007.2008.

On most of the premium that Crusader cedes to the reinsurer, the reinsurer pays a commission to Crusader that includes a reimbursement of the cost of acquiring the portion of the premium that is ceded.  Crusader does not currently assume any reinsurance.  The Company intends to continue obtaining reinsurance although the availability and cost may vary from time to time.  The unpaid losses ceded to the reinsurer are recorded as an asset on the balance sheet.

Crusader maintains reserves for losses and loss adjustment expenses with respect to both reported and unreported losses.  When a claim for loss is reported to the Company, a reserve is established for the expected cost to settle the claim, including estimates of any related legal expense and other costs associated with resolving the claim.  These reserves are called “case based” reserves.  In addition, the Company also sets up reserves at the end of each reporting period for losses that have occurred but have not yet been reported to the Company.  These incurred but not reported losses are referred to as “IBNR” reserves.

Crusader establishes reserves for reported losses based on historical experience, upon case-by-case evaluation of facts surrounding each known loss, and the related policy provisions.  The amount of reserves for unreported losses is estimated by analysis of historical and statistical information.  The ultimate liability of Crusader may be greater or less than estimated reserves.  Reserves are monitored and adjusted when appropriate and are reflected in the statement of operations in the period of adjustment.  Reserves for losses and loss adjustment expenses are estimated to cover the future amounts needed to pay claims and related expenses with respect to insured events that have occurred.

The process of establishing loss and loss adjustment expense reserves involves significant judgment.  The following table shows the development of the unpaid losses and loss adjustment expenses for fiscal years 19992000 through 2009.2010.  The top line of the table shows the estimated liability for unpaid losses and loss adjustment expenses, net of reinsurance, recorded at the balance sheet date for each of the indicated years.  This liability represents the estimated amount of losses and loss adjustment expenses for losses arising in the current and prior years that are unpaid at the balance sheet date.  The table shows the reestimated amount of the previously recorded liability based on experience as of the end of each succeeding year.  The estimate may change as more information becomes known.  The Company believes that its loss and loss adjustment expense reserves are properly stated.  When subsequent loss and loss adjustment expense development justifies changes in reserving practices, the Company responds accordingly.

When evaluating the information in the following table, it should be noted that each amount includes the effects of all changes in amounts of prior periods; therefore, the cumulative redundancy or deficiency represents the aggregate change in the estimates over all prior years.  Conditions and trends that have affected development of liability in the past may not necessarily occur in the future.  Accordingly, it maywould not be appropriate to extrapolate future deficiencies or redundancies based on this table.

The following table shows, for the periods indicated, Crusader's statutory ratios of net premium written to statutory policyholders' surplus.  Since each property and casualty insurance company has different capital needs, an "acceptable" ratio of net premium written to policyholders' surplus for one company may be inapplicable to another.  While there is no statutory requirement applicable to Crusader that establishes a permissible net premium to surplus ratio, guidelines established by the National Association of Insurance Commissioners (NAIC) provide that such ratio should generally be no greater than 3 to 1.

Crusader’s results herein are reported in accordance with U.S. generally accepted accounting principles (GAAP).  These results differ from its financial results reported in accordance with Statutory Accounting Principles (SAP) as prescribed or permitted by insurance regulatory authorities.  Crusader is required to file financial statements with insurance regulatory authorities prepared on a SAP basis.

SAP differs in certain respects from GAAP.  The more significant of these differences that apply to Crusader are:

The insurance company operation is subject to regulation by the California Department of Insurance (the insurance department) and by the department of insurance of other states in which Crusader is licensed.  The insurance department has broad regulatory, supervisory, and administrative powers.  These powers relate primarily to the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature and limitation of insurers' investments; the prior approval of rates, rules and forms; the issuance of securities by insurers; periodic financial and market conduct examinations of the affairs of insurers; the annual and other reports required to be filed on the financial condition and results of operations of such insurers or for other purposes; and the establishment of reserves required to be maintained for unearned premiums, losses, and other purposes.  The regulations and supervision by the insurance department are designed principally for the benefit of policyholders and not for the insurance company shareholders.  The insurance department’s Market Conduct Division is responsible for conducting periodic examinations of companies to ensure compliance with California Insurance Code and California Code of Regulations with respect to rating, underwriting and claims handling practices.  The most recent Market Conduct Examination of Crusader covered rating and underwriting practices in California during the period from December 15, 2005, through April 10, 2006.  No significant issues were reported as a result of that examination.  The insurance department also conducts periodic financial examinations of Crusader.  During 2009, the insurance department completed a financial examination of Crusader’s December 31, 2005, through December 31, 2008, statutory financial statements.  A final report on the examination was issued by the insurance department on October 22, 2009.  No significant issues were reported as a result of that examination.

In December 1993, the NAIC adopted a Risk-Based Capital (RBC) Model Law for property and casualty companies.  The RBC Model Law is intended to provide standards for calculating a variable regulatory capital requirement related to a company's current operations and its risk exposures (asset risk, underwriting risk, credit risk and off-balance sheet risk).  These standards are intended to serve as a diagnostic solvency tool for regulators that establishes uniform capital levels and specific authority levels for regulatory intervention when an insurer falls below minimum capital levels.  The RBC Model Law specifies four distinct action levels at which a regulator can intervene with increasing degrees of authority over a domestic insurer if its RBC is equal to or less than 200% of its computed authorized control level RBC.  A company's RBC is required to be disclosed in its statutory annual statement.  The RBC is not intended to be used as a rating or ranking tool nor is it to be used in premium rate making or approval.  Crusader’s adjusted capital at December 31, 2009,2010, was 793%875% of authorized control level risk-based capital.

The following table sets forth the different levels of risk-based capital that may trigger regulatory involvement and the corresponding actions that may result.

Insurance Regulatory Information System (IRIS) was developed by a committee of state insurance regulators primarily to assist state insurance departments in executing their statutory mandate to oversee the financial condition of insurance companies.  IRIS helps those companies that merit highest priority in the allocation of the regulators’ resources on the basis of 13 financial ratios that are calculated annually.  The analytical phase is a review of annual statements and the financial ratios.  The ratios and trends are valuable in pointing to companies likely to experience financial difficulties but are not themselves indicative of adverse financial condition.  The ratio and benchmark comparisons are mechanically produced and are not intended to replace the state insurance departments’ own in-depth financial analysis or on-site examinations.

An unusual range of ratio results has been established from studies of the ratios of companies that have become insolvent or have experienced financial difficulties.  In the analytical phase, companies that receive four or more financial ratio values outside the usual range are analyzed in order to identify those companies that appear to require immediate regulatory action.  Subsequently, a more comprehensive review of the ratio results and an insurer’s annual statement is performed to confirm that an insurer’s situation calls for increased or close regulatory attention.  In 2009,2010, the Company was not outside the usual values on anyvalue of one of the thirteen13 IRIS ratio tests.  IRIS ratio test No. 6 considers the Company’s 2010 investment yield.  An unusual value for that ratio is equal to or over 6.5% or equal to or less than 3%.  Crusader’s 2010 investment yield was 2.7%.

The California Insurance Guarantee Association (CIGA) was created to provide for payment of claims for which insolvent insurers of most casualty lines are liable but which cannot be paid out of such insurers’ assets.  The Company is subject to assessment by CIGA for its pro-rata share of such claims based on premiums written in the particular line in the year preceding the assessment by insurers writing that line of insurance in California.  Such assessments are based upon estimates of losses to be incurred in liquidating an insolvent insurer.  Under the current California Insurance Code, in a particular year, the Company cannot be assessed an amount greater than 2% of its premiums written in the preceding year.  Assessments are recouped through a mandated surcharge to policyholders the year after the assessment.  No assessment was made by CIGA for the 2010, 2009, 2008, or the 20072008 calendar years.

 

Crusader is subject to regulation by the insurance department pursuant to the provisions of the California Insurance Holding Company System Regulatory Act (the "Holding Company Act").  Pursuant to the Holding Company Act, the insurance department may examine the affairs of Crusader at any time.  Certain transactions defined to be of an "extraordinary" type may not be effected without the prior approval of the insurance department.  Such transactions include, but are not limited to, sales, purchases, exchanges, loans and extensions of credit, and investments made within the immediately preceding 12 months involving the lesser of 3% of admitted assets or 25% of policyholders’ surplus as of the preceding December 31.  An extraordinary transaction also includes a dividend which, together with other dividends or distributions made within the preceding twelve12 months, exceeds the greater of 10% of the insurance company's policyholders' surplus as of the preceding December 31 or the insurance company's net income for the preceding calendar year.  An insurance company is also required to notify the insurance department of any dividend after declaration, but prior to payment.

The Holding Company Act also provides that the acquisition or change of “control” of a California domiciled insurance company or of any person who controls such an insurance company cannot be consummated without the prior approval of the insurance commissioner.  In general, a presumption of “control” arises from the ownership of voting securities and securities that are convertible into voting securities, which in the aggregate constitute 10% or more of the voting securities of a California insurance company or a person who controls a California insurance company, such as Crusader.  A person seeking to acquire “control,” directly or indirectly, of the Company must generally file with the insurance commissioner an application for change of control containing certain information required by statute and published regulations and provide a copy of the application to the Company.  The Holding Company Act also effectively restricts the Company from consummating certain reorganizations or mergers without prior regulatory approval.  The Company is in compliance with the Holding Company Act.

Insurance companies are rated to provide both industry participants and insurance consumers with meaningful information on specific insurance companies.  Higher ratings generally indicate financial stability and a strong ability to pay claims.  These ratings are based upon factors relevant to policyholders and are not directed toward protection of investors.  Such ratings are neither a rating of securities nor a recommendation to buy, hold or sell any security and may be revised or withdrawn at any time.  Ratings focus primarily on the following factors:  capital resources, financial strength, demonstrated management expertise in the insurance business, credit analysis, systems development, market segment position and growth opportunities, marketing, sales conduct practices, investment operations, minimum policyholders’ surplus requirements and capital sufficiency to meet projected growth, as well as access to such traditional capital as may be necessary to continue to meet standards for capital adequacy.

The claims-paying abilities of insurers are rated to provide both insurance consumers and industry participants with comparative information on specific insurance companies.  Claims-paying ratings are important for the marketing of certain insurance products.  A higher rating generally indicates greater financial strength and a stronger ability to pay claims.

Effective January 27, 2009,In December of 2010, A.M. Best Company upgradedreaffirmed Crusader’s financial strength rating toof A- (Excellent) from B++ (Good), and revised Crusader’sa rating outlook to “stable” from “positive.of “stable.”   In addition, Crusader’sCrusader was assigned an Issuer Credit Rating was upgraded toof a- (Excellent) from bbb+ (Good).  These rating were reaffirmed by A.M Best as of January 18, 2010.

On November 26, 2002, the Terrorism Risk Insurance Act of 2002 (The Act) was signed by President Bush.  On December 22, 2005, the United States’ government extended The Act, which was set to expire on December 31, 2005, for two more years.  On December 26, 2007, the United States government extended The Act again through December 31, 2014.  The Act establishes a program within the Department of the Treasury in which the federal government will share the risk of loss from acts of terrorism with the insurance industry.  Federal participation will be triggered when the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General of the United States, certifies an act to be an act of terrorism.  No act shall be certified as an act of terrorism unless the terrorist act results in aggregate losses in excess of $5 million.

Under The Act, the federal government will pay 85% of covered terrorism losses exceeding the statutorily established deductible.  All property and casualty insurance companies are required to participate in the program to the extent that they must make available property and casualty insurance coverage for terrorism that does not differ materially from the terms, amounts, and other coverage limitations applicable to losses arising from events other than acts of terrorism.

 

The Company does not write policies on properties considered a target of terrorist activities such as airports, large hotels, large office structures, amusement parks, landmark defined structures, or other large scale public facilities.  In addition, there is not a high concentration of policies in any one area where increased exposure to terrorist threats exist.  Consequently, the Company believes its exposure relating to acts of terrorism is low.  In 2009,2010, Crusader received $114,758$104,735 in terrorism coverage premium from approximately 7%6% of its policyholders.  Crusader’s 20092010 terrorism deductible was $8,544,153.$8,010,176.  Crusader’s 20102011 terrorism deductible is $8,010,176.$7,115,887.

Unifax primarily sells and services commercial multiple peril business insurance policies for Crusader in California.

Bedford Insurance Services, Inc. (Bedford), (Bedford) sells and services daily automobile rental policies in most states for a non-affiliated insurer.

As general agents, these subsidiaries market, rate, underwrite, inspect and issue policies, bill and collect insurance premiums, and maintain accounting and statistical data.  Unifax is the exclusive general agent for Crusader.  Bedford is a non-exclusive general agent for non-affiliated insurance companies.  The Company's marketing is conducted through advertising to independent insurance agents and brokers.  For its services, the general agent receives a commission (based on the premium written) from the insurance company and, in some cases, a policy fee from the customer.  These subsidiaries all hold licenses issued by the California Department of Insurance and other states where applicable.

The Company’s subsidiary, American Acceptance Corporation (AAC), is a licensed insurance premium finance company that provides insurance purchasers with the ability to pay their insurance premiums on an installment basis.  The premium finance company pays the insurance premium to the insurance company in return for a premium finance note from the insured.  These notes are paid off by the insured in nine monthly installments and are secured by the unearned premiums held by the insurance company.  AAC provides premium financing solely for Crusader policies that are produced by Unifax in California.

The Company's subsidiary, Insurance Club, Inc., dba AAQHC, An Administrator (AAQHC) (formally American Association of Quality Health Care), is a membership association and a third party administrator.  AAQHC provides various consumer benefits to its members, including participation in group medical and dental insurance policies that it negotiates.  AAQHC also provides services as a third party administrator and is licensed by the California Department of Insurance.  For these services, AAQHC receives membership and fee income from its members.

The Company's subsidiary, American Insurance Brokers, Inc. (AIB), markets health insurance in California through non-affiliated insurance companies for individuals and groups.  The services provided consist of marketing, billing and collection, accounting, and customer service.  For these services AIB receives commissions from insurance companies.  Most of the business is produced through independent insurance agents and brokers.  AIB holds licenses issued by the California Department of Insurance.

The Company’s investment guidelines on equity securities limit investments in equity securities to an aggregate maximum of $2,000,000.  The Company’s investment guidelines on fixed maturities limit those investments to high-grade obligations with a maximum term of eight years.  The maximum investment authorized in any one issuer is $2,000,000.  This dollar limitation excludes bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues.  Investments in municipal securities are primarily pre-refunded and secured by U.S. treasury securities.  The short-term investments are either U.S. government obligations, FDIC insured, or are in an institution with a Moody's rating of P2 and/or a Standard & Poor's rating of A1.  All of the Company's fixed maturity investment securities are rated, readily marketable, and could be liquidated without any materially adverse financial impact.

The property and casualty insurance industry is highly competitive in the areas of price, coverage, and service.  It is highly cyclical, characterized by periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity.

The profitability of insurers is affected by many factors including rate and coverage competition, the frequency of claims and their average cost, natural disasters, state regulations, interest rates, crime rates, general business conditions, and court decisions redefining and expanding the extent of coverage and granting higher compensation awards.  One of the challenging and unique features of the property and casualty business is the fact that since premiums are collected before losses are paid, its products are normally priced before its costs are known.

The Company's property and casualty insurance business continues to experience a competitive marketplace.  There are many substantial competitors who have larger resources, operate in more states, and insure coverages in more lines and in higher limits than the Company.  In addition, Crusader competes not only with other insurance companies but also with other general agencies.  Many of those general agencies offer more products than the Company.  The principal method of competition is price.  While the Company attempts to meet such competition with competitive prices, its emphasis is on service, promotion, and distribution.  Additional information regarding competition in the insurance marketplace is discussed in Item 7 -“Management’s- “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations.”

The insurance premium financing operation currently finances policies written only through its sister company, Unifax.  Consequently, AAC’s growth is primarily dependent on the growth of Crusader and Unifax business.  In addition,Effective July 20, 2010, AAC reduced the competitive pricing,interest rate charged on premiums financed to 0% in an effort to increase the qualitysales of its service,existing renewal and new business written by Unifax for Crusader.  Due to the easelow interest rate environment, the cost of money to provide this incentive is not material.  The Company monitors the cost of providing this incentive, and convenience ofdepending on the cost/benefit determination, the Company can continue to offer 0% financing with AAC have made its profitability possible.or withdraw it at any time.

CompetitionThere have been significant changes in the Company’s health insurance business is intense.operation in 2010. In 2009 and 20082010, approximately 76% and 82%61% of the Company’s health insurance income was derived from the CIGNA HealthCare (CIGNA) medical and dental plan programs, respectively.  CIGNA’s plans consist of small group medicalprograms.  This represents a decline from 76% in 2009 and dental policies and individual dental policies.  Currently, all new CIGNA small group medical insurance policies are written through AIB and all CIGNA small group medical insurance policyholders are members of AAQHC.  In November 2008, AIB entered into a General Agent Contract with Blue Shield of California who will pay AIB override commissions for all business submitted to it.82% in 2008. In September 2009, CIGNA substantially reduced the medical plans offered to small group employers in the state of California from nineteen19 plans down to four.  All new employer groups4 plans.  Primarily as a result of CIGNA’s decision to reduce the number of plans offered, AIB decided to terminate its marketing and existing employer groups on their anniversary date will have the option to choose from the four available plans.administrative agreement with CIGNA effective August 31, 2010.  On September 1, 2010, AIB will be assisting itsstopped marketing all CIGNA policyholders in obtaining new coverage in oneproducts.  AAQHC, An Administrator, ceased administration of the four CIGNA dental plans or with other contracted carriers.  This reduction ineffective November 1, 2010, and CIGNA medical plans offered to small group employers ineffective December 1, 2010.  The termination of the state of Californiamarketing and administrative agreement with CIGNA has resulted in a decrease in AIB commission income and AAQHC fee income.  AIB is assisting the AAQHC will continuemembers in obtaining medical and dental coverage with other contracted carriers.  These carriers are paying AIB commissions for these members.  AIB has developed a new partnership with Guardian Life Insurance Company of America (GLIC). Effective October 1, 2010, AIB has been marketing GLIC’s dental and group life products to underwriteboth brokers and administer the remaining four CIGNA medicalpublic.  GLIC has created plans and CIGNA dental plansspecifically for individuals and small group employers.AIB.

The Company is subject to numerous risks and uncertainties, the outcome of which may impact future results of operations and financial condition.  These risks are as follows:

The Company’s revenues and profitability may be impacted by national and local economic conditions, particularly in the state of California.  Unfavorable changes in economic conditions such as recessions, increased levels of unemployment and inflation may reduce the Company’s revenue through policy cancellations, modifications or non-renewals.  The recent turmoil in the economy and the disruption in the financial markets may impair the ability of customers to pay premiums as they become due, reduce the amount of coverage that customers may seek and may limit the amount of premiums the Company may charge for insurance.  The Company is not able to predict the duration and severity of the current disruption in the financial markets and adverse economic conditions, both nationally and in the state of California.

Loss and loss adjustment expense reserves represent an estimate of amounts needed to pay and administer claims with respect to insured events that have occurred, including events that have occurred but have not yet been reported to the Company.  There is a high level of uncertainty inherent in the evaluation of the required losses and loss adjustment expense reserves for the Company.  The long-tailed nature of liability claims and the volatility of jury awards exacerbate that uncertainty.  The Company sets loss and loss adjustment expense reserves at each balance sheet date based upon management’s best estimate of the ultimate payments that it anticipates will be made to settle all losses incurred and related loss adjustment expenses incurred as of that date for both reported and unreported losses.  The ultimate cost of claims is dependent upon future events, the outcomes of which are affected by many factors.  Company claim reserving procedures and settlement philosophy, current and perceived social and economic inflation, current and future court rulings and jury attitudes, improvements in medical technology, and many other economic, scientific, legal, political, and social factors all can have significant effects on the ultimate costs of claims.  Changes in Company operations and management philosophy also may cause actual developments to vary from the past.  Since the emergence and disposition of claims are subject to uncertainties, the net amounts that will ultimately be paid to settle claims may vary significantly from the estimated amounts provided for in the accompanying consolidated financial statements.  Any adjustments to reserves are reflected in the operating results of the periods in which they are made.

The Company’s financial condition, liquidity and results of operations largely depend on the Company’s ability to underwrite and set premiums accurately for the risks it faces.  Premium rate adequacy is necessary to generate sufficient premium to offset losses, loss adjustment expenses, underwriting expenses, and to earn a profit.  In order to price its products accurately, the Company must collect and properly analyze a substantial volume of data; develop, test and apply appropriate rating formulas; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy.  The Company’s ability to undertake these efforts successfully is subject to a number of risks and uncertainties, including, without limitation:

 

 

Such risks may result in the Company’s pricing being based on outdated, inadequate, or inaccurate data, or inappropriate analyses, assumptions, or methodologies, and may cause the Company to estimate incorrectly future changes in the frequency or severity of claims.  As a result, the Company could under price risks, which would negatively affect the Company’s margins, or it could overprice risks, which could reduce the Company’s volume and competitiveness.  In either event, the Company’s operating results, financial condition, and cash flow could be materially adversely affected.

The availability, amount and cost of reinsurance depend on market conditions and may vary significantly.  Any decrease in the amount of the Company’s reinsurance will increase the risk of loss and could materially adversely affect its business and financial condition.�� Ceded reinsurance does not discharge the Company’s direct obligations under the policies it writes.  The Company remains liable to its policyholders even if the Company is unable to make recoveries that it believes it is entitled to under the reinsurance contracts.  Losses may not be recovered from the reinsurers until claims are paid.

The insurance business is subject to extensive regulation by the California Department of Insurance.  The California Department of Insurance has broad regulatory powers implemented to protect policyholders, not stockholders or other investors.  These powers include, among other things, the ability to:

Federal legislation currently does not directly impact the property and casualty business, but the business can be indirectly affected by changes in federal regulations.  In addition, the U.S. Congress and other federal agencies from time to time consider whether federal regulation of U. S. insurers is necessary.  The Company is unable to predict whether such laws will be enacted and how and to what extent this could affect our business.the Company.

This extensive regulation may affect the cost or demand for the Company’s products and may limit the ability to obtain rate increases or to take other actions that the Company might desire to do in order to increase its profitability.

Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims.  The financial strength rating of A.M. Best is subject to periodic review using, among other things, proprietary capital adequacy models, and is subject to revision or withdrawal at any time.  Insurance financial strength ratings are directed toward the concerns of policyholders and insurance agents, and are not intended for the protection of investors.  Any downgrade in the Company’s A.M. Best rating could cause a reduction in the number of policies it writes and could have a material adverse effect on the Company’s results of operations and financial position.  Effective January 27, 2009,In December of 2010, A.M. Best Company upgradedreaffirmed Crusader’s financial strength rating toof A- (Excellent) from B++ (Good), and revised Crusader’sa rating outlook to “stable” from “positive.of “stable.”   In addition, Crusader’sCrusader was assigned an Issuer Credit Rating was upgraded toof a- (Excellent) from bbb+ (Good).  These ratings were reaffirmed by A.M Best as of January 18, 2010.

The Company faces significant competition which, at times, is intense.  If the Company is unable to compete effectively, its business and financial condition could be materially adversely affected.  Competition in the property and casualty marketplace is based on many factors including premiums charged, services provided, financial strength ratings assigned by independent rating agencies, speed of claims payments, reputation, perceived financial strength, and general experience.  The Company competes with regional and national insurance companies.  Some competitors have greater financial, marketing, and management resources than the Company.  Intense competitive pressure on prices can result from the actions of even a single large competitor.  The Company uses its own proprietary premium rates to determine the price it charges for its property and casualty policies.

 

Investment income is an important component of the Company’s revenues and net income.  The ability to achieve investment objectives is affected by factors that are beyond the Company’s control.  Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions.  Any significant decline in investment income as a result of falling interest rates or general market conditions would have an adverse effect on net income and, as a result, on the Company’s stockholders' equity and policyholders' surplus.

The outlook offor the Company’s investment income is dependent on the future direction of interest rates and the amount of cash flows from operations that are available for investment.  The fair values of fixed maturity investments that are "available-for-sale" fluctuate with changes in interest rates and cause fluctuations in the stockholders' equity.

The failure or inability of independent insurance agents and brokers to market the Company’s insurance programs successfully could have a material adverse effect on its business, financial condition and results of operations.  Independent brokers are not obligated to promote the Company’s insurance programs and may sell competitors' insurance programs.  The Company’s business largely depends on the marketing efforts of independent brokers and on the Company’s ability to offer insurance programs and services that meet the requirements of those brokers’ customers.

The insurance industry is the target of class action lawsuits and other types of litigation, some of which involve claims for substantial and/or indeterminate amounts and the outcomes of which are unpredictable.  This litigation can be based on a variety of issues including insurance and claim settlement practices.  Although the Company has not been the target of any specific class action lawsuits, it is possible that a suit of this type could have a negative impact on the Company’s business.

The Company depends on the accuracy, reliability, and proper functioning of its information technology systems.  The Company relies on these information technology systems to effectively manage many aspects of its business, including underwriting, policy acquisition, claims processing and handling, accounting, reserving and actuarial processes and policies, and maintaining its policyholder data.  The failure of hardware or software that supports the Company’s information technology systems or the loss of data contained in the systems could disrupt its business and could result in decreased premiums, increased overhead costs, and inaccurate reporting, all of which could have a material adverse effect on the Company’s business, financial condition, and results of operations.  In addition, despite system redundancy, the implementation of security measures and the existence of a disaster recovery plan for the Company’s information technology systems, these systems are vulnerable to damage or interruption from events such as:

It is possible that a system failure, accident, or security breach could result in a material disruption to the Company’s business.  In addition, substantial costs may be incurred to remedy the damages caused by these disruptions.  To the extent that a critical system fails or is not properly implemented and the failure cannot be corrected in a timely manner, the Company may experience disruptions to the business that could have a material adverse effect on the Company’s results of operations.

The Company’s disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is accumulated and communicated to management and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.  The Company’s management believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected.  These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and the Company cannot ensure that any design will succeed in achieving its stated goals under all potential future conditions.  Accordingly, because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and may not be detected.

Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated by the SEC require the Company to include in its Form 10-K a report by its management regarding the effectiveness of the Company’s internal control over financial reporting.  The report includes, among other things, an assessment of the effectiveness of the Company’s internal control over financial reporting as of the end of its fiscal year, including a statement as to whether or not the Company’s internal control over financial reporting is effective.  This assessment must include disclosure of any material weaknesses in the Company’s internal control over financial reporting identified by management.  Areas of the Company’s internal control over financial reporting may require improvement from time to time.  If management is unable to assert that the Company’s internal control over financial reporting is effective now or in any future period, investors may lose confidence in the accuracy and completeness of the Company’s financial reports, which could have an adverse effect on its stock price.

The Company must hire and train new employees and retain current employees to handle its operations.  The failure of the Company to successfully hire and retain a sufficient number of skilled employees could result in the Company having to slow the growth of its business.  In addition, the failure to adequately staff its claims department could result in decreased quality of the Company’s claims operations.  The Company’s success also depends heavily upon the continued contributions of its executive officers, both individually and as a group.  The Company’s future performance will be substantially dependent on its ability to retain and motivate its management team.  The loss of the services of any of the Company’s executive officers could prevent the Company from successfully implementing its business strategy, which could have a materially adverse effect on the Company’s business, financial condition, and results of operations.

The Company presently occupies approximately 46,000 square feet of an office building located at 23251 Mulholland Drive, Woodland Hills, California, under a master lease expiring March 31, 2012.  Erwin Cheldin, the Company's former president and a current director and principal stockholder, is the owner of the building.  The Company signed an extension to the lease with a 4% increase in rent effective April 1, 2007.  The lease provides for an annual gross rent of $1,066,990 from April 1, 2007, through March 31, 2012.  In addition, the lease extension provides for two, five-year options with a rent increase of 5% for each option period.  The Company believes that at the inception of the lease agreement and at each subsequent extension, the terms of the lease were at least as favorable to the Company as could have been obtained from non-affiliated third parties.  The Company utilizes for its own operations approximately 100% of the space it leases.

The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings in which it may be named as either plaintiff or defendant.  Incidental actions are sometimes brought by customers or others that relate to disputes concerning the issuance or non-issuance of individual insurance policies or other matters.  In addition, the Company resorts to legal proceedings from time to time in order to enforce collection of premiums, commissions, or fees for the services rendered to customers or to their agents.  These routine items of litigation do not materially affect the Company’s operations and are handled on a routine basis through its counsel.

The Company's common stock is traded on the NASDAQ Global Market under the symbol "UNAM."  The high and low sales prices (by quarter) during the last two comparable twelve-month12 month periods are as follows:

As of December 31, 2009,2010, the approximate number of shareholders of record of the Company's common stock was 350.  In addition, the Company estimates beneficial owners of the Company’s common stock held in the name of nominees to be approximately 460.500.  Total shareholders are estimated to be approximately 810.850.

On March 23, 2009,December 7, 2010, the Board of Directors declared a cash dividend of $0.18 per common share payable on May 1, 2009, to shareholders of record on April 10, 2009.  In addition, on December 7, 2009, the Board of Directors declared an additional cash dividend of $0.18$0.36 per common share payable on December 29, 2009,2010, to shareholders of record on December 17, 2009.21, 2010.  Declaration of future cash dividends will be subject to the Company’s profitability and its cash requirements.  Because the Company is a holding company and operates through its subsidiaries, its cash flow and, consequently, its ability to pay dividends are dependent upon the earnings and cash requirements of its subsidiaries and the distribution of those earnings to the Company.  Also, the ability of Crusader to pay dividends to the Company is subject to certain regulatory restrictions under the Holding Company Act (see Item 1 – “Business - Insurance Company Operation - Holding Company Act”).  Presently, without prior regulatory approval, Crusader may pay a dividend in any twelve (12) month12-month period to its parent equal to the greater of (a) 10% of Crusader's statutory policyholders' surplus or (b) Crusader's statutory net income for the preceding calendar year.  Based on Crusader’s statutory net incomesurplus for the year ended December 31, 2009,2010, the maximum dividend that could be made by Crusader to Unico without prior regulatory approval in 20102011 is $6,255,381.

The following table sets forth certain information with respectOn December 19, 2008, the Board of Directors authorized a stock repurchase program to purchasesacquire from time to time up to an aggregate of 500,000 shares of the Company’s common stock.  This program has no expiration date and may be terminated by the Board of Directors at any time.  During the year ended December 31, 2010, the Company did not repurchase any shares of common stock ofunder this program. During the Company during the quarteryear ended December 31, 2009, by the Company.Company repurchased under this program and previously adopted programs an aggregate of 268,111 shares of the Company’s common stock at a cost of $2,447,948 of which $131,756 was allocated to capital and $2,316,192 was allocated to retained earnings. As of December 31, 2010, the Company had remaining authority under the 2008 program to repurchase up to an aggregate of 247,356 shares of its common stock.  The 2008 program is the only program under which there is remaining authority to repurchase shares of the Company’s common stock.  The Company has retired all stock repurchased.

The following graph compares the cumulative total shareholder return on the Company's Common Stock with the cumulative total return of equity securities traded on the National Association of Securities Dealers Automated Quotation System (NASDAQ) and a peer group consisting of all NASDAQ property and casualty companies.  The comparison assumes $100.00 was invested on December 31, 2003,2005, in the Company's Common Stock and in each of the comparison groups, and assumes reinvestment of dividends.  It should be noted that this graph represents historical stock price performance and is not necessarily indicative of any future stock price performance.

Unico American Corporation is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, health and life insurance through its agency subsidiaries; provides insurance premium financing; and provides membership association services.

The Company’s net income was $2,329,152 in 2010, $2,927,375 in 2009, and $5,283,016 in 2008, and $6,712,444 in 2007.2008.

This overview discusses some of the relevant factors that management considers in evaluating the Company's performance, prospects and risks.  It is not all inclusive and is meant to be read in conjunction with the entirety of the management discussion and analysis, the Company's financial statements and notes thereto, and all other items contained within the report on this Annual Report on Form 10-K.

The Company receives its revenue primarily from earned premium derived from the insurance company operations, commission and fee income generated from the insurance agency operations, finance charges and fee income from the premium finance operations, and investment income from cash generated primarily from the insurance company operation.  The insurance company operation generates approximately 86%87% of the Company’s total revenue.  The Company’s remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually not material to consolidated revenues.

The property and casualty insurance industry is highly competitive and includes many insurers, ranging from large companies offering a wide variety of products worldwide to smaller, specialized companies in a single state or region offering only a single product.  Many of the Company's existing or potential competitors have considerably greater financial and other resources, have a higher rating assigned by independent rating organizations such as A.M. Best Company, have greater experience in the insurance industry and offer a broader line of insurance products than the Company.  As of December 31, 2009,2010, Crusader was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington.  Since 2004, all of Crusader’s business was written in the state of California.  During the year ended December 31, 2009,2010, 98% of Crusader’s business was commercial multi peril policies.  Effective January 27, 2009,In December of 2010, A.M. Best Company upgradedreaffirmed Crusader’s financial strength rating toof A- (Excellent) from B++ (Good), and revised Crusader’sa rating outlook to “stable” from “positive.of “stable.”   In addition, Crusader’sCrusader was assigned an Issuer Credit Rating was upgraded toof a- (Excellent) from bbb+ (Good).  These ratings were reaffirmed by A.M. Best as of January 18, 2010.

A primary challenge of the property and casualty insurance company operation is contending with the fact that the Company sells its products before the ultimate costs are actually known.  That is, when pricing its products, the Company must forecast the ultimate claim and loss adjustment costs.  In addition, factors such as changes in regulations and legal environment, among other things, can all impact the accuracy of such costs.

The property and casualty insurance industry is characterized by periods of soft market conditions, in which premium rates are stable or falling and insurance is readily available, and by periods of hard market conditions, in which premium rates rise, coverage may be more difficult to find, and insurers’ profits increase.  The Company believes that the California property and casualty insurance market continues to be a “soft market.”  The Company cannot determine how long the existing market conditions will continue nor in which direction they might change.  Despite the increased competition in the property and casualty marketplace, the Company believes that rate adequacy is more important than premium growth and that underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) is its primary goal.  Nonetheless, Crusader believes that it can grow its sales and profitability by continuing to focus upon three key areas of its operations: (1) product development, (2) improved service to retail brokers, and (3) appointment of captive and independent retail agents.