Fremont Michigan InsuraCorp (FMMH) 10-Q 2005 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2005

OR

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

For the transition period from              to             

No. 000-50926

(Commission File Number)

FREMONT MICHIGAN INSURACORP, INC.

(Exact name of Registrant as specified in its charter)

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

(231) 924-0300

(Registrant’s telephone number, including area code)

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

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

	Number of Shares Outstanding as of August 5, 2005
COMMON STOCK (No Par Value)	862,128
(Title of Class)	(Outstanding Shares)

FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

• inflation;

• the cost, availability and collectibility of reinsurance;

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

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

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

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

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

• adverse litigation or arbitration results;

• the ability to carry out our business plans; and

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

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

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

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

June 30, 2005 and December 31, 2004

	June 30, 2005		December 31, 2004
Assets
Investments:	��
Fixed maturities available for sale, at fair value	$	38,539,055	$	37,205,694
Equity securities available for sale, at fair value		7,905,961		5,071,758
Mortgage loans on real estate from related parties		264,308		136,262
Total investments		46,709,324		42,413,714
Cash and cash equivalents		3,296,077		3,672,254
Receivable from sale of investments		—		739,150
Premiums due from policyholders, net		6,876,150		6,846,286
Amounts due from reinsurers		9,186,349		10,879,642
Accrued investment income		362,331		398,208
Property and equipment, net of accumulated depreciation		819,788		848,103
Deferred policy acquisition costs		2,638,650		2,860,621
Other assets		2,273		3,136
	$	69,890,942	$	68,661,114
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	20,330,563	$	18,972,587
Unearned premiums		19,026,350		19,675,548
Reinsurance funds withheld and premiums ceded payable		2,476,123		3,018,710
Accrued expenses and other liabilities		6,641,658		6,798,772
Surplus notes		2,890,288		2,890,288
Total liabilities		51,364,982		51,355,905
Commitments and contingencies
Stockholders’ Equity
Preferred stock, no par value, authorized 4,500,000 shares, no shares issued and outstanding		—		—
Class A common stock, no par value, authorized 5,000,000 shares, 862,128 shares issued and outstanding		—		—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—		—
Additional paid-in capital		7,531,913		7,512,913
Retained earnings		10,625,613		9,213,811
Accumulated other comprehensive income:
Net unrealized gains on investments		368,434		578,485
Total stockholders’ equity		18,525,960		17,305,209
Total liabilities and stockholders’ equity	$	69,890,942	$	68,661,114

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

For the Six Months Ended June 30, 2005 and 2004

	2005		2004
Revenues:
Net premiums earned	$	18,422,167	$	11,281,681
Net investment income		741,591		410,191
Net realized gains (losses) on investments		382,420		(8,372	)
Other income, net		193,911		186,426
Total revenues		19,740,089		11,869,926
Expenses:
Losses and loss adjustment expenses, net		10,980,836		7,177,050
Policy acquisition and other underwriting expenses		6,484,688		3,728,995
Interest expense		155,041		273,212
Demutualization expenses		—		41,227
Total expenses		17,620,565		11,220,484
Income before federal income tax expense		2,119,524		649,442
Federal income tax expense		707,722		90,000
Net income	$	1,411,802	$	559,442
Net income per common share
Basic	$	1.64
Diluted	$	1.64

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

For the Three Months Ended June 30, 2005 and 2004

	2005		2004
Revenues:
Net premiums earned	$	9,311,489	$	6,194,533
Net investment income		367,124		241,062
Net realized gains (losses) on investments		362,111		(5	)
Other income, net		98,656		94,275
Total revenues		10,139,380		6,529,865
Expenses:
Losses and loss adjustment expenses, net		5,171,843		3,259,774
Policy acquisition and other underwriting expenses		3,479,525		2,103,651
Interest expense		77,435		132,693
Demutualization expenses		—		22,602
Total expenses		8,728,803		5,518,720
Income before federal income tax expense		1,410,577		1,011,145
Federal income tax expense		471,172		90,000
Net income	$	939,405	$	921,145
Net income per common share
Basic	$	1.09
Diluted	$	1.09

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2005

	Preferred Stock		Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
			Class A		Class B
Balance, December 31, 2004	$	—	$	—	$	—	$	7,512,913	$	9,213,811	$	578,485		$	17,305,209
Comprehensive income:
Net income										1,411,802					1,411,802
Net unrealized losses on investments, net of taxes												(210,051	)		(210,051	)
Total comprehensive income															1,201,751
Issuance of stock options								19,000							19,000
Balance, June 30, 2005	$	—	$	—	$	—	$	7,531,913	$	10,625,613	$	368,434		$	18,525,960

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Six Months Ended June 30, 2005 and 2004

	2005			2004
Cash flows from operating activities:
Net income	$	1,411,802		$	559,442
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		78,610			78,610
Stock based compensation expense		19,000			—
Net realized (gains) losses on investments		(382,420	)		8,372
Net amortization of premiums on investments		118,780			104,443
Changes in assets and liabilities:
Premiums due from policyholders		(29,864	)		225,272
Amounts due from reinsurers		1,693,293			4,716,068
Accrued investment income		35,877			(48,167	)
Deferred policy acquisition costs		221,971			(1,761,512	)
Deferred equity offering expenses		—			(162,108	)
Other assets		863			(723	)
Losses and loss adjustment expenses		1,357,976			2,557,412
Unearned premiums		(649,198	)		(820,452	)
Reinsurance funds withheld and premiums ceded payable		(542,587	)		(3,278,317	)
Accrued expenses and other liabilities		(157,114	)		(35,628	)
Net cash provided by operating activities		3,176,989			2,142,712
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		17,582,412			4,795,916
Proceeds from sales of equity investments		1,426,295			103,359
Purchases of fixed maturity investments		(18,845,645	)		(8,607,699	)
Purchases of equity investments		(4,277,037	)		(2,537,420	)
Decrease in receivable from investments		739,150			—
Repayment of mortgage loan on real estate from related party		1,954			1,841
Issuance of mortgage loan on real estate from related party		(130,000	)		—
Purchase of equipment, net		(50,295	)		(71,455	)
Net cash used in investing activities		(3,553,166	)		(6,315,458	)
Cash flows from financing activities:		—			—
Net decrease in cash and cash equivalents		(376,177	)		(4,172,746	)
Cash and cash equivalents, beginning of period		3,672,254			6,977,804
Cash and cash equivalents, end of period	$	3,296,077		$	2,805,058

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

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

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

The accompanying unaudited consolidated financial statements for the interim periods included herein are unaudited; however, such information reflects all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations, and cash flows for the interim periods. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year. The accompanying unaudited consolidated financial statements should be read with the annual consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

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

Certain reclassifications have been made to the prior year balances to conform to the current year presentation.

Conversion and Demutualization

On October 12, 2004, FIC, formerly Fremont Mutual Insurance Company, converted from a mutual to a stock form of insurance company and subsequently on October 15, 2004, all of its outstanding capital stock was transferred to FMIC thereby becoming a wholly owned subsidiary of FMIC. Prior to the conversion and since 1876, Fremont Mutual Insurance Company conducted business as a Michigan domiciled mutual property and casualty insurer. FMIC was formed on November 18, 2003 for the purpose of acquiring all of the stock of FIC. On October 15, 2004 FMIC issued and sold 862,118 shares of its Common Stock at $10 per share (the “Conversion”). As part of the Conversion, surplus note holders converted approximately $2,498,000 of principal and accrued interest on surplus notes into common stock of FMIC.

2. New Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). This standard requires expensing of stock options and other share-based payments and supersedes SFAS No. 123. This standard is effective for the Company as of January 1, 2006 and will apply to all awards granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior awards. The Company will adopt the standard as of the effective date and believes it will not have a material effect on the consolidated financial statements as the Company already values stock options issued based upon a fair value method and recognizes the fair value as an expense over the period in which the options vest.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

3. Comprehensive Income or Loss

The Company’s comprehensive income (loss) for the six months ended June 30, 2005 and 2004 is as follows:

	2005			2004
Net income	$	1,411,802		$	559,442
Other comprehensive income:
Unrealized (loss) gain on investments arising during the period		172,369			(626,277	)
Deferred income tax benefit (expense) of unrealized (loss) gain on investments arising during the period		(58,605	)		212,934
Change in deferred tax valuation allowance		58,605			(212,934	)
Unrealized (loss) gain on investments arising during the period, net of deferred income taxes and valuation allowance		172,369			(626,277	)
Adjustment for pretax realized (gains) losses on investments included in net income (loss)		(382,420	)		8,372
Deferred income tax expense (benefit) of realized gains included in net income (loss)		130,023			(2,846	)
Change in deferred tax valuation allowance		(130,023	)		2,846
		(210,051	)		(617,905	)
Comprehensive income (loss)	$	1,201,751		$	(58,463	)

The Company’s comprehensive income (loss) for the three months ended June 30, 2005 and 2004 is as follows:

	2005			2004
Net income	$	939,405		$	921,145
Other comprehensive income:
Unrealized (loss) gain on investments arising during the period		1,017,683			(1,179,194	)
Deferred income tax benefit (expense) of unrealized (loss) gain on investments arising during the period		(346,012	)		400,926
Change in deferred tax valuation allowance		346,012			(400,926	)
Unrealized (loss) gain on investments arising during the period, net of deferred income taxes and valuation allowance		1,017,683			(1,179,194	)
Adjustment for pretax realized (gains) losses on investments included in net income (loss)		(362,111	)		5
Deferred income tax expense (benefit) of realized gains included in net income (loss)		123,118			—
Change in deferred tax valuation allowance		(123,118	)		—
		655,572			(1,179,189	)
Comprehensive income (loss)	$	1,594,977		$	(258,044	)

4. Income Per Share

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

	2005		2004
Numerator for basic and diluted net income per share:
Net income	$	1,411,802	—
Denominator:
Denominator for basic net income per share – weighted average shares outstanding		862,128	—
Effect of dilutive stock options		621	—
Denominator for diluted net income per share – adjusted weighted average shares outstanding		862,749	—
Basic net income per share	$	1.64	—
Diluted net income per share	$	1.64	—

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The computation of basic and diluted net income per share for the three months ended June 30 is as follows:

	2005		2004
Numerator for basic and diluted net income per share:
Net income	$	939,405	—
Denominator:
Denominator for basic net income per share – weighted average shares outstanding		862,128	—
Effect of dilutive stock options		2,143	—
Denominator for diluted net income per share – adjusted weighted average shares outstanding		864,271	—
Basic net income per share	$	1.09	—
Diluted net income per share	$	1.09	—

5. Segment Information

The Company defines its operations as property and casualty insurance operations. The Company writes four major insurance lines exclusively in the State of Michigan: Personal Lines, Commercial Lines, Farm and Marine. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer.

The Company evaluates product line profitability based on underwriting gain (loss). Certain expenses are allocated based on assumptions and estimates made by management. Underwriting gain (loss) by product line would change if different methods were applied.

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

	2005			2004
Revenues:
Net premiums earned:
Personal lines	$	11,815,612		$	6,858,530
Commercial lines		3,868,420			2,864,415
Farm		2,057,512			1,203,830
Marine		680,623			354,906
Total net premiums earned		18,422,167			11,281,681
Expenses:
Loss and loss adjustment expenses:
Personal lines		6,903,523			4,550,775
Commercial lines		2,678,692			1,885,140
Farm		808,910			641,221
Marine		589,711			99,914
Total loss and loss adjustment expenses		10,980,836			7,177,050
Policy acquisition and other underwriting expenses:
Personal lines		4,159,150			2,267,162
Commercial lines		1,361,702			946,460
Farm		724,254			398,187
Marine		239,582			117,186
Total policy acquisition and other underwriting expenses		6,484,688			3,728,995
Underwriting gain (loss):
Personal lines		752,939			40,593
Commercial lines		(171,974	)		32,815
Farm		524,348			164,422
Marine		(148,670	)		137,806
Total underwriting gain		956,643			375,636
Net investment income		741,591			410,191
Net realized gains (losses) on investments		382,420			(8,372	)
Other income, net		193,911			186,426
Interest expense		(155,041	)		(273,212	)
Demutualization expenses		—			(41,227	)
Income before federal income taxes	$	2,119,524		$	649,442

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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

	2005			2004
Revenues:
Net premiums earned:
Personal lines	$	5,993,618		$	3,804,322
Commercial lines		1,938,826			1,539,253
Farm		1,049,685			661,841
Marine		329,360			189,117
Total net premiums earned		9,311,489			6,194,533
Expenses:
Loss and loss adjustment expenses:
Personal lines		3,110,752			2,129,531
Commercial lines		1,306,881			563,754
Farm		389,495			428,587
Marine		364,715			137,902
Total loss and loss adjustment expenses		5,171,843			3,259,774
Policy acquisition and other underwriting expenses:
Personal lines		2,238,923			1,291,364
Commercial lines		724,932			523,100
Farm		391,390			224,815
Marine		124,280			64,372
Total policy acquisition and other underwriting expenses		3,479,525			2,103,651
Underwriting gain (loss):
Personal lines		643,943			383,427
Commercial lines		(92,987	)		452,399
Farm		268,800			8,439
Marine		(159,635	)		(13,157	)
Total underwriting gain		660,121			831,108
Net investment income		367,124			241,062
Net realized gains (losses) on investments		362,111			(5	)
Other income, net		98,656			94,275
Interest expense		(77,435	)		(132,693	)
Demutualization expenses		—			(22,602	)
Income before federal income taxes	$	1,410,577		$	1,011,145

6. Other Postretirement Plan

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

	2005			2004
Components of net periodic benefit cost:
Service cost	$	10,423		$	127,812
Interest cost		58,820			111,469
Amortization of prior transition obligation		—			24,346
Amortization of unrecognized prior service cost		(42,841	)		—
Amortization of unrecognized net actuarial loss		18,748			25,770
Net periodic benefit cost	$	45,150		$	289,397

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The components of the net periodic benefit cost for the three months ended June 30 are as follows:

	2005			2004
Components of net periodic benefit cost:
Service cost	$	5,211		$	63,906
Interest cost		29,410			55,735
Amortization of prior transition obligation		—			12,173
Amortization of unrecognized prior service cost		(21,420	)		—
Amortization of unrecognized net actuarial loss		9,375			12,885
Net periodic benefit cost	$	22,576		$	144,699

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the six months ended June 30, 2005 the Company has made contributions to the plan of approximately $79,000. During 2005 the Company expects to contribute a total of $79,000 to the plan to cover anticipated benefit payments.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to qualifying sponsors of retiree healthcare benefit plans. Based on the current structure of the Company’s plan for retirees as well as the retiree population the Company does not expect that the Act will have a material impact on the postretirement benefit obligation. Therefore, the valuation of the unfunded postretirement benefit obligation and the determination of the net postretirement benefit cost included in these financial statements do not reflect the effects, if any, of the Act on the plan.

7. Reinsurance

Premiums earned are net of amounts ceded of $3,506,000 and $8,630,000 for the six months ended June 30, 2005 and 2004, respectively. Loss and loss adjustment expenses are net of amounts ceded of $1,026,000 and $5,371,000 for the six months ended June 30, 2005 and 2004, respectively.

Premiums earned are net of amounts ceded of $1,817,000 and $3,860,000 for the three months ended June 30, 2005 and 2004, respectively. Loss and loss adjustment expenses are net of amounts ceded of $308,000 and $1,985,000 for the three months ended June 30, 2005 and 2004, respectively.

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

The Conversion Transaction and The Holding Company

Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. On October 12, 2004, the Insurance Company, formerly Fremont Mutual Insurance Company, converted from a mutual to a stock form of insurance company and subsequently on October 15, 2004, all of its outstanding capital stock was transferred to Fremont Michigan InsuraCorp, Inc. thereby becoming a wholly owned subsidiary of Fremont Michigan InsuraCorp, Inc. Prior to the conversion and since 1876, Fremont Mutual Insurance Company conducted business as a Michigan domiciled mutual property and casualty insurer. The Holding Company was formed on November 18, 2003 for the purpose of acquiring all of the stock of the Insurance Company. On October 15, 2004 the Holding Company issued and sold 862,118 shares of its Common Stock at $10 per share (the “Conversion”). After subtracting the offering costs of $1,116,000 the net value of common stock issued was approximately $7,505,000. As part of the Conversion, surplus note holders converted approximately $2,498,000 of principal and accrued interest on surplus notes into common stock of the Holding Company. The net cash received from the stock offering was approximately $5,007,000.

Except for $250,000 that was retained for administrative expenses, the Holding Company, in exchange for all of the stock in the Insurance Company, contributed to the Insurance Company all of the net cash proceeds from the sale of the Holding Company Common Stock.

The Conversion has been accounted for as a simultaneous conversion, recapitalization and share offering which did not change the historical accounting basis of the Insurance Company’s financial statements.

The Holding Company is subject to regulation by the Michigan Office of Financial and Insurance Services (“OFIS”) as its primary regulator because it is the holding company for Fremont Insurance Company.

Overview of Business

The Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and writing principally personal lines, commercial lines, farm and marine insurance policies through independent agents. We were founded in 1876 and have served Michigan policyholders for over 129 years. We market policies through approximately 162 independent insurance agencies. We have four business segments: personal, commercial, farm and marine. As of June 30, 2005, we had approximately 50,400 policies in force and assets of $69.9 million.

The Company’s executive offices are located at 933 E. Main Street, Fremont, Michigan 49412-9753, and the telephone number is (231) 924-0300. Our website address iswww.fmic.com. Information on the Company’s website is not a part of this Form 10-Q. The Company makes available free of charge on its website, or provides a link to, the Company’s Forms 3, 4, 5, 10-K, 10-Q and 8-K and any amendments to these Forms, that have been filed with the SEC as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to the SEC. To access these filings, go to the Company’s website and click on “Investor Information”, then click on “SEC Filings.”

General

We use accounting principles that are in compliance with those generally accepted in the United States of America (GAAP). Management’s discussion and analysis covers the Company’s financial condition and results of operations for the three months ended June 30, 2005 and 2004. The Company’s fiscal year ends on December 31.

Critical Accounting Policies

General. We are required to make estimates and assumptions in certain circumstances that affect the amounts reported in our financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market trends, industry trends and other data we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions, and that reported results of operation will not be adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time.

The policies relating to liabilities for loss and loss adjustment expenses, investments, policy acquisition costs, reinsurance and income taxes are those we believe to be most sensitive to estimates and judgments. These policies are more fully described below. There have been no material changes to these policies during the most recent quarter.

Liabilities for Loss and Loss Adjustment Expenses (LAE). These liabilities are estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported to the Company. The amount of the reserve for reported claims is based primarily on a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each occurrence, and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for incurred but unreported (“IBNR”) claims and loss adjustment expense are calculated by using historical and actuarial information by line of business as adjusted to current conditions. Inflation is implicitly provided for in the reserving function through analysis of costs, trends and comparisons of historical reserving results to the ultimate results. Reserves are closely monitored and are recomputed periodically

using the most recent information on reported claims and a variety of statistical techniques. Reserves are estimates. We expect that these estimates will be more or less than the amounts ultimately paid when the claim is settled. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the current financial statements.

Loss reserving techniques, which rely on historical information as adjusted to reflect current conditions, have been consistently applied during the periods presented. Changes in the estimate of the liability for losses and LAE reflect actual payments and evaluations of new information and data since the last report. Because of the nature of insurance claims, there are uncertainties inherent in the estimates of the ultimate loss payment. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past as well as uncertainties regarding future loss cost trends. The ultimate liability for unpaid losses and LAE will differ from the amount recorded at the last reported date.

The property and casualty insurance industry generally has incurred substantial aggregate losses from claims related to asbestos-related illnesses, environmental remediation, product and construction defect liability, mold and other uncertain exposures. However, the Company has not experienced significant losses from these types of claims.

The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of June 30, 2005 and December 31, 2004 (in thousands):

	June 30, 2005		December 31, 2004
Reported losses
Personal	$	5,870	$	5,182
Commercial		4,272		4,444
Farm		1,016		1,019
Marine		269		276
		11,427		10,921
IBNR losses
Personal		4,709		4,577
Commercial		3,165		2,510
Farm		803		753
Marine		227		212
		8,904		8,052
Total
Personal		10,579		9,759
Commercial		7,437		6,954
Farm		1,819		1,772
Marine		496		488
	$	20,331	$	18,973

The reserves are reported gross of any amounts recoverable from reinsurers and are reduced for anticipated salvage and subrogation. Anticipated salvage and subrogation as of June 30, 2005 and December 31, 2004, was approximately $441,000 and $473,000, respectively.

Investments.Our investments are classified as available for sale. Investments classified as available for sale are available to be sold in the future in response to the Company’s liquidity needs, changes in market interest rates, tax strategies and asset-liability management strategies, among other reasons. Available for sale investments are reported at fair value, with unrealized gains and losses reported in the accumulated other comprehensive income component of stockholders’ equity, net of deferred taxes and the corresponding deferred tax asset valuation allowance.

Other Than Temporary Impairments of Securities and Unrealized Losses on Investments. We review the status and market value changes of our investments on at least a quarterly basis during the year, and any provisions for other than temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. In reviewing investments for other than temporary impairment, we consider, in addition to a security’s market price history, the issuer’s operating results, financial condition and liquidity, its ability to access capital markets, credit rating trends, most current audit opinion, industry and securities markets conditions, analyst expectations, and our intent and ability to retain fixed maturity securities for a period of time sufficient to allow for anticipated recovery in market value, in their totality to reach our conclusions.

Additionally, our impairment evaluation and recognition for interests in mortgage-backed/asset-backed securities is conducted in accordance with the guidance provided by the Emerging Issues Task Force of the Financial Accounting Standards Board. Under this guidance, impairment losses on investments must be recognized if the fair value of the investment is less than both its book value

and the net present value of expected future cash flows at the most recent (prior) estimation date. If these criteria are met, an impairment charge, calculated as the difference between the current book value of the investment and its fair value, is included in earnings as a realized loss in the period the impairment arose. As a result of this evaluation process, there were no impairment losses recorded in mortgage-backed/asset-backed securities during the three and six month periods ended June 30, 2005 and 2004.

During the six months ended June 30, 2005 the Company recognized approximately $99,000 in realized losses due to two equity investments that the Company deemed to be other than temporarily impaired. During the six months ended June 30, 2004 there were no investments that the Company determined to be other than temporarily impaired. At June 30, 2005 and December 31, 2004 gross unrealized losses on available for sale investments, which were not impaired, was approximately $223,000 and $239,000, respectively. Management views the unrealized losses as being temporary.

Policy Acquisition Costs. We defer certain policy acquisition costs, which vary with, and are directly related to, the production of business. In our case, these deferred costs consist primarily of agent commissions incurred net of ceding commissions earned. These costs are amortized over the effective period of the related insurance policies. The method followed in computing deferred policy acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premiums earned, related investment income, loss and loss adjustment expense and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected to be loss and loss adjustment expense, may require accelerated amortization of deferred policy acquisition costs. Deferred policy acquisition costs at June 30, 2005 and December 31, 2004 were approximately $2,639,000 and $2,861,000, respectively.

Reinsurance. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. These balances are the amounts we expect to collect from our reinsurers for settled claims and for claims that are in the process of adjustment but have not been completely settled. Premiums paid for reinsurance contracts are recognized over the contract period during which the reinsurance coverage attaches to the underlying policy. Ceded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and LAE are reported separately as assets, instead of being netted with the associated liabilities, because reinsurance does not relieve us of our legal liability to the claimants. Additionally, the same uncertainties associated with estimating unpaid loss and LAE affect the estimates for the ceded portion of these liabilities. We continually monitor the financial condition of our reinsurers.

At June 30, 2005 and December 31, 2004, the Company’s recoverable from reinsurers was comprised of the following:

	June 30, 2005		December 31, 2004
Paid losses and LAE	$	839,877	$	1,486,039
Unpaid losses and LAE		8,134,077		9,186,686
Unearned premium		212,395		206,917
Amounts due from reinsurers	$	9,186,349	$	10,879,642

The effect of reinsurance on premiums written and earned for the three and six months ended June 30, 2005 and 2004 are as follows:

	Three Months Ended June 30,
	2005						2004
	Written			Earned			Written			Earned
Direct	$	12,432,850		$	11,109,975		$	11,096,771		$	10,020,612
Assumed		11,552			18,843			35,185			33,915
Ceded		(1,831,245	)		(1,817,329	)		(1,231,468	)		(3,859,994	)
Net premiums	$	10,613,157		$	9,311,489		$	9,900,488		$	6,194,533
	Six Months Ended June 30,
	2005						2004
	Written			Earned			Written			Earned
Direct	$	21,242,008		$	21,875,888		$	18,965,345		$	19,829,391
Assumed		36,814			52,132			71,991			81,886
Ceded		(3,511,331	)		(3,505,853	)		(2,235,321	)		(8,629,596	)
Net premiums	$	17,767,491		$	18,422,167		$	16,802,015		$	11,281,681

Income Taxes. Deferred federal income tax assets and liabilities are recognized for the expected future tax consequences attributable to the differences between financial statement carrying amounts of existing assets and liabilities and their respective tax

bases. Deferred tax assets primarily relate to deductible temporary differences for unpaid losses and loss adjustment expenses and unearned premiums, as well as net operating loss and minimum tax credit carry forwards. We review our net deferred federal tax asset on a regular basis for recoverability based on the availability of future taxable income in the years when the deductible temporary differences are expected to reverse. As a result of this review, we continue to carry a 100% valuation allowance at June 30, 2005, which reduces the Company’s net deferred tax asset to zero. However, management believes that if the Company continues to generate taxable income during the remainder of 2005 as it has during the previous two quarters, sufficient positive evidence with respect to the availability of future taxable income will exist. In the event that sufficient positive evidence exists, a portion of the valuation allowance may be reversed at some point during the remainder of 2005. A decrease in the valuation allowance would be reported as an income tax benefit in the period of reversal.

Results of Operations – Three Months Ended June 30, 2005 and 2004

The discussion that follows should be read in connection with the unaudited consolidated financial statements and notes thereto included elsewhere in this report.

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statement of income for the three months ended June 30, 2005 and 2004. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2005			2004			Dollar			Percentage
Underwriting gain (loss)
Personal	$	643,943		$	383,427		$	260,516		67.9	%
Commercial		(92,987	)		452,399			(545,386	)	(120.6	)%
Farm		268,800			8,439			260,361		3085.2	%
Marine		(159,635	)		(13,157	)		(146,478	)	1113.3	%
Total underwriting gain (loss)		660,121			831,108			(170,987	)	(20.6	)%
Other revenue (expense) items
Net investment income		367,124			241,062			126,062		52.3	%
Net realized gains (losses) on investments		362,111			(5	)		362,116		NM
Other income		98,656			94,275			4,381		4.6	%
Interest expense		(77,435	)		(132,693	)		55,258		(41.6	)%
Demutualization expense		—			(22,602	)		22,602		(100.0	)%
Total other revenue (expense) items		750,456			180,037			570,419		316.8	%
Income before federal income taxes		1,410,577			1,011,145			399,432		39.5	%
Federal income taxes		471,172			90,000			381,172		423.5	%
Net income	$	939,405		$	921,145		$	18,260		2.0	%

NM – Not Meaningful

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended June 30, 2005 and 2004.

	2005			2004			Change			% Change
Direct premiums written	$	12,432,850		$	11,096,771		$	1,336,079		12.0	%
Net premiums written	$	10,613,157		$	9,900,488		$	712,669		7.2	%
Net premiums earned	$	9,311,489		$	6,194,533		$	3,116,956		50.3	%
Loss and LAE		5,171,843			3,259,774			1,912,069		58.7	%
Policy acquisition and other underwriting expenses		3,479,525			2,103,651			1,375,874		65.4	%
Underwriting gain (loss)	$	660,121		$	831,108		$	(170,987	)	(20.6	)%
Loss and LAE ratio		55.5	%		52.6	%		2.9	%
Policy acquisition and other underwriting expense ratio		37.4	%		34.0	%		3.4	%
Combined ratio		92.9	%		86.6	%		6.3	%

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

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

	2005		2004		$ Change		% Change
Direct Premiums Written:
Personal	$	7,783,615	$	6,866,095	$	917,520	13.4	%
Commercial		2,622,384		2,403,596		218,788	9.1	%
Farm		1,242,375		1,162,927		79,448	6.8	%
Marine		784,476		664,153		120,323	18.1	%
	$	12,432,850	$	11,096,771	$	1,336,079	12.0	%

The increase of 13.4% in direct premiums written for the personal segment continues to be driven by the private passenger auto and homeowner product lines. Renewal premium volume for the private passenger auto and homeowner product lines increased 40.2% and 10.4%, respectively. However, the soft market is beginning to impact personal lines, as new business volume for the private passenger auto and homeowner product lines decreased 11.1% and 17.3%, respectively, which drove the total new business volume for the personal lines segment down 15.2% for the quarter. The Company expects that the soft market will continue to impact direct premiums written in the personal segment throughout the remainder of 2005. The commercial segment saw a 9.1% increase in direct premiums written, driven by a 54.1% increase in new business premiums with renewal premiums remaining flat. Despite the existing soft market, we have been successful writing new commercial exposures within our target market which is focused on small to medium size business operations. Direct premiums written for the farm segment were up 6.8%, primarily driven by renewal premiums which were up 8.1%, with new business premium down 6.2%. Direct premiums written for the marine segment increased 18.1%, driven by both an increase in new and renewal premiums of 7.6% and 21.7% respectively. Overall, direct premiums written were up 12.0%, with new business premiums up 4.4% and renewal premiums up 12.4%.

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

	2005		2004		$ Change		% Change
Net Premiums Written:
Personal	$	6,558,115	$	6,033,413	$	524,702	8.7	%
Commercial		2,233,817		2,197,479		36,338	1.7	%
Farm		1,116,728		1,067,155		49,573	4.6	%
Marine		704,497		602,441		102,056	16.9	%
	$	10,613,157	$	9,900,488	$	712,669	7.2	%

Net premiums written increased approximately $713,000 due to the overall increase in direct premiums written offset by growth in ceded premiums written under the Company’s reinsurance agreements of approximately $623,000.

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

	2005		2004		$ Change		% Change
Net Premiums Earned:
Personal	$	5,993,618	$	3,804,322	$	2,189,296	57.5	%
Commercial		1,938,826		1,539,253		399,573	26.0	%
Farm		1,049,685		661,841		387,844	58.6	%
Marine		329,360		189,117		140,243	74.2	%
	$	9,311,489	$	6,194,533	$	3,116,956	50.3	%

Net premiums earned increased $1,089,000 as a result of overall volume growth coupled with an increase of $2,281,000 due to the decline in earned premium ceded to the reinsurer under the quota share reinsurance contract which was placed into runoff on January 1, 2004. The increase was offset by higher ceded premiums earned of $253,000 under the Company’s excess of loss and catastrophe reinsurance agreements.

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

	2005			2004			$ Change			% Change
Loss and LAE:
Personal	$	3,110,751		$	2,129,530		$	981,221		46.1	%
Commercial		1,306,882			563,754			743,128		131.8	%
Farm		389,495			428,587			(39,092	)	-9.1	%
Marine		364,715			137,902			226,813		164.5	%
	$	5,171,843		$	3,259,773		$	1,912,070		58.7	%
Incurred Claim Count:
Personal		1,207			1,293			(86	)	-6.7	%
Commercial		166			199			(33	)	-16.6	%
Farm		113			148			(35	)	-23.6	%
Marine		64			52			12		23.1	%
		1,550			1,692			(142	)	-8.4	%
Average Loss and LAE per Claim:
Personal	$	2,577		$	1,647		$	930		56.5	%
Commercial		7,873			2,833			5,040		177.9	%
Farm		3,447			2,896			551		19.0	%
Marine		5,699			2,652			3,047		114.9	%
	$	3,337		$	1,927		$	1,410		73.2	%
Loss and LAE Ratio:
Personal		51.9	%		56.0	%
Commercial		67.4	%		36.6	%
Farm		37.1	%		64.8	%
Marine		110.7	%		72.9	%
		55.5	%		52.6	%

The increase in loss and LAE of $1,912,000 is due primarily to the impact of the runoff of the quota share reinsurance agreement, an increase in the 2005 excess of loss reinsurance retention level and an increase in claim severity. During the three months ended June 30, 2004 the Company ceded approximately $1,396,000 of incurred loss and LAE to the quota share reinsurer while there was no loss and LAE ceded during the same period in 2005. Furthermore, as a result of increasing the excess of loss retention from $125,000 in 2004 to $150,000 in 2005, net loss and LAE increased approximately $183,000 during the three months ended June 30, 2005.

The Company’s loss and LAE ratio increased to 55.5% during the three months ended June 30, 2005 compared to 52.6% for the same period in 2004 as a result of the quota share runoff. As noted above the Company’s net earned premium increased $2,281,000 due to the decline in earned premium ceded under the quota share agreement. While at the same time loss and LAE increased only $1,396,000 due to the decline in ceded loss and LAE under the quota share agreement. On a comparative basis if the Company had not ceded the aforementioned earned premium and loss and LAE under the quota share agreement for the quarter ended June 30, 2004 the Company’s loss and LAE ratio for that period would have been 54.9%. The loss and LAE ratio, excluding the quota share impact for the quarter ended June 30, 2004 of 54.9% increased to 55.5% for the quarter ended June 30, 2005 as a result of the increased excess of loss retention level and increased claim severity.

For the personal and farm segments the decline in the loss ratio is due to higher net premiums earned; however, the decline was somewhat offset by an increase in loss and LAE as a result of increased claim severity. The commercial segments loss ratio increased as a result of increased claim severity during the quarter relating to an increase in fire related losses. The increase in the loss and LAE ratio for the marine segment, the Company’s smallest and therefore most volatile segment in terms of its loss ratio is due primarily to increased severity from several losses that individually exceeded $10,000 during the three months ended June 30, 2005. During that time the Company had 6 reported claims, each in excess of $10,000 that totaled $136,000 while during the same period in 2004 the Company had only 1 claim exceeding $10,000.

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

	2005			2004			Change			% Change
Amortization of deferred policy acquisition costs	$	1,601,467		$	648,145		$	953,322		147.1	%
Other underwriting expenses		1,878,058			1,455,506			422,552		29.0	%
Total policy acquisition and other underwriting expenses	$	3,479,525		$	2,103,651		$	1,375,874		65.4	%
Net premiums earned	$	9,311,389		$	6,194,533		$	3,116,856		50.3	%
Expense ratio		37.4	%		34.0	%		3.4	%

Amortization of deferred policy acquisition costs increased during the period in 2005 as compared to the same period in 2004 as a result of the reduction in the quota share reinsurance ceding commission income component of deferred policy acquisition costs. Factors impacting the growth in other underwriting expenses include an increase in the provision for agent incentives including the Company’s profit sharing commission as well as the October 2005 agent incentive trip and an increase in premium taxes as a result of a reduction in tax credits utilized in prior years. The expense ratio, defined as the ratio of policy acquisition and other underwriting expenses to net earned premium, increased due to the increase in amortization of deferred policy acquisition costs as well as the other aforementioned items.

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

	2005			2004			Change			% Change
Gross investment income	$	493,223		$	382,000		$	111,223		29.1	%
Less: Investment expenses		(126,099	)		(140,938	)		14,839		(10.5	)%
Net investment income	$	367,124		$	241,062		$	126,062		52.3	%
Average invested assets (amortized cost basis)	$	47,384,511		$	35,143,514		$	12,240,997		34.8	%
Rate of return on average invested assets		3.1	%		2.7	%		0.4	%

Gross investment income increased during the three months ended June 30, 2005 as a result of a higher invested asset balance offset by a decline in pretax yields during the quarter. Investment expenses decreased due to lower internal costs related to the management of the fixed maturity portfolio as a result of increased utilization of the Company’s outside investment management consultant. The average invested asset balance (amortized cost basis), including cash and cash equivalents, increased $12.2 million as a result of the net cash proceeds of $5.0 million received in October 2004 from the Company’s stock offering coupled with approximately $8.0 million of cash provided by operations from July 2004 through June 30, 2005. The annualized rate of return on average invested assets increased due to the decline in investment expenses during the period.

The Company had very little sale activity in its investment portfolio during the three months ended June 30, 2004. However, during the three months ended June 30, 2005 the Company continued to shift its equity portfolio from common stocks to mutual funds resulting in net realized gains from the sale of equity securities of $100,000. During the three months ended June 30, 2005 the Company also focused on reducing the duration in the fixed maturity portfolio in order to temper the fluctuations in the market value of the fixed maturity portfolio. This resulted in net realized gains on the sale of fixed maturity securities of $262,000 during the three months ended June 30, 2005. As of March 31, 2005 the fixed maturity portfolio had an average duration of 5.3 years which was reduced to 4.1 years as of June 30, 2005.

Interest Expense. Interest expense decreased from $133,000 to $77,000 for the three month period ended June 30, 2004 and 2005, respectively. The decrease is due to the decline in the outstanding balance of surplus notes during the two periods as well as the decline in the quota share funds withheld account balance. The quota share reinsurance contract was structured on a funds withheld basis and requires the Company to accrue interest at an annual rate of 2.5%.

Income Tax Expense. During the three months ended June 30, 2005 the Company recorded income tax expense of approximately $471,000 resulting in an effective tax rate of 33.4%. The difference between the effective tax rate and the statutory tax rate of 34% is due to non-taxable investment income and non-deductible expenses. During the three months ended June 30, 2004 the Company recorded income tax expense of approximately $90,000 resulting in an effective tax rate of 8.9%. The difference between the effective tax rate and the statutory tax rate of 34% is due to non-taxable investment income and non-deductible expenses as well as the expected impact of the reduction in the deferred tax asset valuation allowance for the year.

Results of Operations – Six Months Ended June 30, 2005 and 2004

The discussion that follows should be read in connection with the unaudited consolidated financial statements and notes thereto included elsewhere in this report.

Consolidated Results of Operations. The following table shows the underwriting gain or loss as well as other revenue and expense items included in our unaudited consolidated statement of income for the six months ended June 30, 2005 and 2004. The Company’s underwriting gain or loss consists of net premiums earned less loss and LAE and policy acquisition and other underwriting expenses. The Company’s underwriting performance is the most important factor in evaluating the overall results of operations given the fluctuations which can occur in loss and LAE due to weather related events as well as the uncertainties involved in the process of estimating reserves for losses and LAE. The underwriting results and the fluctuations in other revenue and expense items are discussed in greater detail below.

							Change
	2005			2004			Dollar			Percentage
Underwriting gain (loss)
Personal	$	752,939		$	40,593		$	712,346		1754.8	%
Commercial		(171,974	)		32,815			(204,789	)	(624.1	)%
Farm		524,348			164,422			359,926		218.9	%
Marine		(148,670	)		137,806			(286,476	)	(207.9	)%
Total underwriting gain (loss)		956,643			375,636			581,007		154.7	%
Other revenue (expense) items
Net investment income		741,591			410,191			331,400		80.8	%
Net realized gains (losses) on investments		382,420			(8,372	)		390,792		(4667.8	)%
Other income		193,911			186,426			7,485		4.0	%
Interest expense		(155,041	)		(273,212	)		118,171		(43.3	)%
Demutualization expense		—			(41,227	)		41,227		(100.0	)%
Total other revenue (expense) items		1,162,881			273,806			889,075		324.7	%
Income before federal income taxes		2,119,524			649,442			1,470,082		226.4	%
Federal income taxes		707,722			90,000			617,722		686.4	%
Net income	$	1,411,802		$	559,442		$	852,360		152.4	%

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the six months ended June 30, 2005 and 2004.

	2005			2004			Change			% Change
Direct premiums written	$	21,242,008		$	18,965,345		$	2,276,663		12.0	%
Net premiums written	$	17,767,491		$	16,802,015		$	965,476		5.7	%
Net premiums earned	$	18,422,167		$	11,281,681		$	7,140,486		63.3	%
Loss and LAE		10,980,836			7,177,050			3,803,786		53.0	%
Policy acquisition and other underwriting expenses		6,484,688			3,728,995			2,755,693		73.9	%
Underwriting gain (loss)	$	956,643		$	375,636		$	581,007		154.7	%
Loss and LAE ratio		59.6	%		63.6	%		(4.0	)%
Policy acquisition and other underwriting expense ratio		35.2	%		33.1	%		2.1	%
Combined ratio		94.8	%		96.7	%		(1.9	)%

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

	2005		2004		$ Change		% Change
Direct Premiums Written:
Personal	$	13,344,365	$	11,447,056	$	1,897,309	16.6	%
Commercial		4,620,663		4,548,678		71,985	1.6	%
Farm		2,239,636		2,083,554		156,082	7.5	%
Marine		1,037,344		886,057		151,287	17.1	%
	$	21,242,008	$	18,965,345	$	2,276,663	12.0	%

The increase of 16.6% in direct premiums written for the personal segment continues to be driven by the private passenger auto and homeowner product lines. Although renewal premium volume for the private passenger auto and homeowner product lines increased 41.8% and 10.2%, respectively, the soft market has begun to impact personal lines, as new business volume for the private passenger auto product line has slowed to an 8.9% increase while the homeowner product line experienced a decrease of 7.6%. For the personal lines segment renewal premiums have increased 18.2% while new business premiums have decreased 1.9%. The Company expects that the soft market will continue to impact direct premiums written in the personal segment throughout the remainder of 2005. Despite the soft market conditions experienced in the commercial segment we have been successful writing new commercial exposures within our target market which is focused on small business operations. Commercial premiums are up 1.6% with new business direct written premium increasing 48%. However, due to an agency cancellation and underwriting actions taken to non-renew larger commercial exposures deemed outside the Company’s target market, renewal premiums are still down 6.5%. Direct premiums written for the farm segment are up 7.5% driven by an increase of 9.5% in renewal premiums offset by a decline in new business of 11.6%. Direct premiums written for the marine segment are up 17.1% driven by a combination of both new and renewal premiums which are up 3.8% and 21.6%, respectively. Overall, direct written premiums are up 12.0% with new business premiums up 10.4% and renewal premiums up 11.2%.

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

	2005		2004		$ Change			% Change
Net Premiums Written:
Personal	$	10,977,389	$	9,967,095	$	1,010,294		10.1	%
Commercial		3,895,909		4,143,989		(248,080	)	(6.0	)%
Farm		1,969,993		1,887,403		82,590		4.4	%
Marine		924,200		803,528		120,672		15.0	%
	$	17,767,491	$	16,802,015	$	965,476		5.7	%

Net premiums written increased $965,000 due to the overall increase in direct premiums written offset by growth in ceded premiums written under the Company’s reinsurance agreements of approximately $1,311,000.

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

	2005		2004		$ Change		% Change
Net Premiums Earned:
Personal	$	11,815,612	$	6,858,530	$	4,957,082	72.3	%
Commercial		3,868,420		2,864,415		1,004,005	35.1	%
Farm		2,057,512		1,203,830		853,682	70.9	%
Marine		680,623		354,906		325,717	91.8	%
	$	18,422,167	$	11,281,681	$	7,140,486	63.3	%

Net premiums earned increased $2,046,000 as a result of overall volume growth coupled with an increase of $5,788,000 due to the decline in earned premium ceded to the reinsurer under the quota share reinsurance contract which was placed into runoff on January 1, 2004. The increase was offset by higher ceded premiums earned of $694,000 under the Company’s excess of loss and catastrophe reinsurance agreements.

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

	2005			2004			$ Change			% Change
Loss and LAE:
Personal	$	6,903,522		$	4,550,775		$	2,352,747		51.7	%
Commercial		2,678,693			1,885,140			793,553		42.1	%
Farm		808,910			641,221			167,689		26.2	%
Marine		589,711			99,914			489,797		490.2	%
	$	10,980,836		$	7,177,050		$	3,803,786		53.0	%
Incurred Claim Count:
Personal		2,149			2,097			52		2.5	%
Commercial		288			341			(53	)	-15.5	%
Farm		170			221			(51	)	-23.1	%
Marine		73			73			0		0.0	%
		2,680			2,732			(52	)	-1.9	%
Average Loss and LAE per Claim:
Personal	$	3,212		$	2,170		$	1,042		48.0	%
Commercial		9,301			5,528			3,773		68.2	%
Farm		4,758			2,901			1,857		64.0	%
Marine		8,078			1,369			6,710		490.2	%
	$	4,097		$	2,627		$	1,470		56.0	%
Loss and LAE Ratio:
Personal		58.4	%		66.4	%
Commercial		69.2	%		65.8	%
Farm		39.3	%		53.3	%
Marine		86.6	%		28.2	%
		59.6	%		63.6	%

The increase in loss and LAE of $3,804,000 is due primarily to the impact of the runoff of the quota share reinsurance agreement, an increase in the 2005 excess of loss reinsurance retention level and an increase in claim severity. During the six months ended June 30, 2004 the Company ceded approximately $2,445,000 of incurred loss and LAE to the quota share reinsurer while there was no loss and LAE ceded during the same period in 2005. Furthermore, as a result of increasing the excess of loss retention from $125,000 in 2004 to $150,000 in 2005, net loss and LAE increased approximately $363,000 during the six months ended June 30, 2005.

The Company’s loss and LAE ratio declined to 59.6% during the six months ended June 30, 2005 compared to 63.6% for the same period in 2004 as a result of the quota share runoff. As noted above the Company’s net earned premium increased $5,788,000 due to the decline in earned premium ceded under the quota share agreement. While at the same time loss and LAE increased only $2,445,000 due to the decline in ceded loss and LAE under the quota share agreement. On a comparative basis if the Company had not ceded the aforementioned earned premium and loss and LAE under the quota share agreement for the six months ended June 30, 2004 the Company’s loss and LAE ratio for that period would have been 56.4%. The loss and LAE ratio, excluding the quota share impact for the six months ended June 30, 2004 of 56.4% increased to 59.6% for the six months ended June 30, 2005 as a result of the increased excess of loss retention level and increased claim severity.

For the personal and farm segments, the decline in the loss ratio is due to higher net premiums earned; however, the decline was somewhat offset by an increase in loss and LAE as a result of increased claim severity. The commercial segment’s loss ratio increased slightly as a result of increased claim severity during the quarter ended June 20, 2005 offset by mild losses incurred during the first quarter. The increase in the loss and LAE ratio for the marine segment, the Company’s smallest and therefore most volatile segment in terms of its loss ratio is due primarily to increased severity during the six months ended June 30, 2005. During that time period, the Company had 8 reported claims, each in excess of $10,000 that totaled $303,000 while during the same period in 2004 the Company had only 1 claim reported in excess of $10,000.

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

	2005			2004			$ Change			% Change
Amortization of deferred policy acquisition costs	$	3,099,264		$	907,243		$	2,192,021		241.6	%
Other underwriting expenses		3,385,424			2,821,752			563,672		20.0	%
Total policy acquisition and other underwriting expenses	$	6,484,688		$	3,728,995		$	2,755,693		73.9	%
Net premiums earned	$	18,422,067		$	11,281,681		$	7,140,386		63.3	%
Expense ratio		35.2	%		33.1	%		2.1	%

Amortization of deferred policy acquisition costs increased during the period in 2005 as compared to the same period in 2004 as a result of the reduction in the quota share reinsurance ceding commission income component of deferred policy acquisition costs. Factors impacting the growth in other underwriting expenses include an increase in the provision for agent incentives including the Company’s profit sharing commission as well as the October 2005 agent incentive trip and an increase in premium taxes as a result of a reduction in tax credits utilized in prior years. The expense ratio, defined as the ratio of policy acquisition and other underwriting expenses to net earned premium, increased due to the increase in amortization of deferred policy acquisition costs as well as the other aforementioned items.

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

	2005			2004			Change			% Change
Gross investment income	$	973,086		$	722,019		$	251,067		34.8	%
Less: Investment expenses		(231,495	)		(311,828	)		80,333		(25.8	)%
Net investment income	$	741,591		$	410,191		$	331,400		80.8	%
Average invested assets (amortized cost basis)	$	47,159,343		$	35,216,416		$	11,942,927		33.9	%
Rate of return on average invested assets		3.1	%		2.3	%		0.8	%

Gross investment income increased during the six months ended June 30, 2005 as a result of a higher invested asset balance while pretax yields remained relatively consistent during the two six month periods. Investment expenses decreased due to lower internal costs related to the management of the fixed maturity portfolio as a result of increased utilization of the Company’s outside investment management consultant. In addition, during the six months ended June 30, 2004 the Company incurred $31,000 related to a letter of credit associated with the quota share reinsurance agreement. These fees were not incurred during the same period in 2005. The average invested asset balance (amortized cost basis), including cash and cash equivalents, increased $11.9 million as a result of the net cash proceeds of $5.0 million received in October 2004 from the Company’s stock offering coupled with approximately $8.0 million of cash provided by operations from July 2004 through June 30, 2005. The annualized rate of return on average invested assets increased due to the decline in investment expenses during the period.

The Company reported a net realized gain of $382,000 and a net realized loss of $8,000 during the six months ended June 30, 2005 and 2004, respectively. The increase is due to more selling activity during the six month period in 2005 compared to 2004. During the six months ended June 30, 2005 the Company continued to shift its equity portfolio from common stocks to mutual funds resulting in net realized gains from the sale of equity securities of $212,000 offset by realized losses of $99,000 related to two equity investments that the Company deemed to be other than temporarily impaired. During the six months ended June 30, 2005 the Company focused on reducing the duration in the fixed maturity portfolio in order to temper the fluctuations in the market value of the fixed maturity portfolio. This resulted in net realized gains on the sale of fixed maturity securities of $269,000 during the six months ended June 30, 2005.

Interest Expense. Interest expense decreased from $273,000 to $155,000 for the six month period ended June 30, 2004 and 2005, respectively. The decrease is due to the decline in the outstanding balance of surplus notes during the two periods as well as the decline in the quota share funds withheld account balance. The quota share reinsurance contract was structured on a funds withheld basis and requires the Company to accrue interest at an annual rate of 2.5%.

Income Tax Expense. During the six months ended June 30, 2005 the Company recorded income tax expense of approximately $708,000 resulting in an effective tax rate of 33.4%. The difference between the effective tax rate and the statutory tax rate of 34% is due to non-taxable investment income and non-deductible expenses. During the six months ended June 30, 2004 the Company recorded income tax expense of $90,000 resulting in an effective tax rate of 13.9%. The difference between the effective tax rate and the statutory tax rate of 34% is due to non-taxable investment income and non-deductible expenses as well as the expected impact of the reduction in the deferred tax asset valuation allowance for the year.

Liquidity and Capital Resources

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

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

Cash flow provided by operations was $3,177,000 and $2,143,000 for the six months ended June 30, 2005 and 2004, respectively, an increase of $1,034,000. During the six months ended June 30, 2005 as compared to the same period in 2004 net premiums collected increased $363,000, net loss and LAE payments increased $1,635,000 while policy acquisition and other underwriting expenses paid increased $1,051,000. During the six months ended June 30, 2005, net cash used under the quota share funds withheld account was $262,000 while during the same period in 2004 net cash used was $3,148,000, a decrease of $2,887,000. Other cash provided by operations increased $470,000 during the six months ended June 30, 2005 compared to the same period in 2004.

Cash flow used in investing activities decreased $2,760,000 during the six months ended June 30, 2005 compared to 2004. Cash used in investing activities was higher during the six months ended June 30, 2004 due to a higher cash balance at the beginning of that period which was invested into both fixed maturity and equity securities during the period.

Our debt structure consists of Series B Surplus Notes which carry a 7 percent interest rate and mature on June 30, 2007. At June 30, 2005 and December 31, 2004, there were $2,890,000 Series B Surplus Notes outstanding.

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

The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at June 30, 2005 and December 31, 2004 are as follows:

	June 30, 2005
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	4,041,852	$	16,476	$	38,841	$	4,019,487
States and political subdivisions		7,390,118		35,378		4,273		7,421,223
Corporate securities		14,345,538		100,380		73,070		14,372,848
Mortgage-backed securities		12,749,556		40,078		64,137		12,725,497
		38,527,064		192,312		180,321		38,539,055
Preferred stocks		426,200		—		600		425,600
Common stocks and mutual funds		7,123,318		398,872		41,829		7,480,361
		7,549,518		398,872		42,429		7,905,961
Total	$	46,076,582	$	591,184	$	222,750	$	46,445,016
	December 31, 2004
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	4,467,011	$	11,248	$	61,148	$	4,417,111
States and political subdivisions		244,126		—		2,002		242,124
Corporate securities		20,952,374		247,820		105,795		21,094,399
Mortgage-backed securities		11,449,913		55,832		53,685		11,452,060
		37,113,424		314,900		222,630		37,205,694
Preferred stocks		498,800		6,800		—		505,600
Common stocks and mutual funds		4,086,743		496,260		16,845		4,566,158
		4,585,543		503,060		16,845		5,071,758
Total	$	41,698,967	$	817,960	$	239,475	$	42,277,452

At June 30, 2005, corporate securities accounted for 37% of our fixed maturity portfolio, mortgage backed securities were 33%, states and political subdivisions were 19% and U. S. government and government agency bonds were 11%. At June 30, 2005, our equity portfolio had a concentration in the U.S. industrial and miscellaneous sector of 88%, while 6% was in the energy sector and 6% was in the financial and insurance services sector.

All securities are listed as available for sale. We evaluate securities for impairment on a regular basis and specifically determine on an individual security basis whether or not the decline in value is other than temporary. Equity securities with unrealized losses at June 30, 2005 were generally determined to have temporary declines in value due to geopolitical reasons or a reaction to their particular industry rather than fundamental reasons. Fixed maturity securities with unrealized losses at June 30, 2005 were also determined to have temporary declines in value as opposed to fundamental changes in the credit quality of the issuers of the securities. We believe it is more likely than not that those securities will appreciate in value.

The following table summarizes the length of time securities with unrealized losses at June 30, 2005 have been in an unrealized loss position:

	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	823,510	$	5,443	$	2,230,024	$	33,398	$	3,053,534	$	38,841
States and political subdivisions		2,529,131		2,977		240,588		1,296		2,769,719		4,273
Corporate securities		8,410,300		30,081		2,229,551		42,989		10,639,851		73,070
Mortgage-backed securities		5,016,296		38,807		2,721,374		25,330		7,737,670		64,137
		16,779,237		77,308		7,421,537		103,013		24,200,774		180,321
Preferred stocks		425,600		600		—		—		425,600		600
Common stocks and mutual funds		1,984,747		41,829		—		—		1,984,747		41,829
		2,410,347		42,429		—		—		2,410,347		42,429
Total	$	19,189,584	$	119,737	$	7,421,537	$	103,013	$	26,611,121	$	222,750

Changes in Interest Rates

Fluctuations in near-term interest rates could have an impact on our results of operations and cash flows due to some rate sensitive investments we hold. Certain fixed maturity securities have call features that allow the issuer to pre-pay the obligation. In a declining interest rate environment, these securities may be called by their issuer and can only be replaced with similar securities bearing lower interest rates. In a rising interest rate environment, because of our strategy of holding these securities to maturity, our ability to invest in higher yielding securities would be limited.

Effects of Inflation

The effects of inflation are implicitly considered in estimating our reserves for unpaid losses and loss adjustment expenses and in the premium rate-making process. The actual effects of inflation on our results of operations cannot be accurately known until the ultimate settlement of claims. However, based upon the actual results reported to date, it is our opinion that our loss and LAE reserves, including reserves for losses that have been incurred but not yet reported, make adequate provision for the effects of inflation.

Contractual Obligations and Commitments

There were no material changes outside the ordinary course of our business in our contractual obligations during the three months ended June 30, 2005.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

General. Market risk is the risk that we will incur losses due to adverse changes in market rates and prices. We have exposure to three principal types of market risk through our investment activities: interest rate risk, credit risk and equity risk. Our primary market risk exposure is to changes in interest rates. We have not entered, and do not plan to enter, into any derivative financial instruments for hedging, trading or speculative purposes.

Interest Rate Risk. Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the market valuation of these securities. Therefore, an adverse change in market prices of these securities would result in losses reflected in the balance sheet. During the second quarter the Company reduced the duration in the fixed maturity portfolio from 5.3 years at March 31, 2005 to 4.1 years at June 30, 2005 in order to lessen the impact of interest rate risk. Although the reduction in duration is expected to reduce the overall interest rate risk associated with our fixed maturity portfolio, it will also likely decrease future investment income. A consequence of shortening duration is a reduction in the yield of the overall portfolio. In a “normal” economic environment, investors are compensated for purchasing longer maturity securities because it exposes them to an increasing amount of interest rate risk. The compensation received for pushing further out the yield curve is represented by higher yields offered on these longer term securities. As such, the decision to shorten duration represents a swap from higher to lower yielding securities. If interest rates were to rise, however, unrealized losses in the fixed maturity portfolio are expected to be smaller because of the shortened duration position.

The change in the fixed maturity portfolio’s net unrealized gain from $92,000 at December 31, 2004 to $12,000 at June 30, 2005 is due to a slight increase in interest rates as evidenced by a 9 basis point increase in the yield on 5 year treasury securities during the period from December 31, 2004 to June 30, 2005.

The following table shows the effects of a change in interest rate on the fair value of our fixed maturity investment portfolio. We have assumed an immediate increase or decrease of 1% or 2% in interest rates. You should not consider this assumption or the values shown in the table to be a prediction of actual future results.

Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	35,632	$	(2,907	)
1%		37,009		(1,530	)
0		38,539		—
-1%		40,069		1,530
-2%		41,446		2,907

Credit Risk. At June 30, 2005, all of our fixed maturity securities were rated by Moody’s as investment grade with an average credit quality rating of AA and an average duration of 4.1 years.

Equity Risk. Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. Our exposure to changes in equity prices primarily results from our holdings of common stocks, mutual funds and other equities. Our portfolio of equity securities is carried on the balance sheet at fair value. Therefore, an adverse change in market prices of these securities would result in losses.

ITEM 4. CONTROLS AND PROCEDURES.

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

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None

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

We do not intend to pay dividends in the foreseeable future and cannot assure our shareholders that dividends will be paid in the future. The Holding Company’s principal source of cash available for payment of dividends is dividends from the Insurance Company. The payment of dividends by the Insurance Company is subject to limitations imposed by the Michigan Insurance Code. The Insurance Company may not pay an extraordinary dividend unless it notifies the Insurance Commissioner and she does not disapprove the payment. An extraordinary dividend includes any dividend which, when taken together with other dividends paid within the preceding 12 months, exceeds the greater of 10% of the Insurance Company’s statutory policyholders’ surplus as of December 31 of the immediately preceding year or its statutory net income, excluding realized capital gains, for the 12-month period ending December 31 of the immediately preceding year. During the year ended December 31, 2005, the Insurance Company can pay a non-extraordinary dividend of up to $2,027,000 without prior approval from the Insurance Commissioner. In order to pay any dividends, the Insurance Company must be in a position to satisfy the requirement that the Company continues to be safe, reliable and entitled to public confidence. Also, in the absence of approval of the Insurance Commissioner, dividends may only be paid from statutory earned surplus. Also, dividends may not exceed the amount of the Insurance Company’s statutory capital stock account in any one-year unless it meets certain other requirements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Company’s Annual Meeting of Shareholders held on May 12, 2005, the following proposals were adopted by the margins indicated.

		Number of Shares
		Voted For	Withheld
Proposal 1:	Election of Class II Directors for a term of three years from the date of election or until such time as their respective successors have been elected and qualified.
	Jack G. Hendon	856,378	4,250
	Donald VanSingel	856,378	4,250
	Harold L. Wiberg	846,908	13,720

		Number of Shares
		Voted For	Against	Abtain
Proposal 2:	Approval of the Fremont Michigan InsuraCorp, Inc. Stock-Based Compensation Plan.	304,102	57,438	1,074

ITEM 5. OTHER INFORMATION.

Proposed Ban on Insurance Scoring. The financial stability of an insured, in all lines of business, has always been a strong consideration in underwriting and pricing. The Company currently uses insurance scoring (similar to a credit score) as a pricing tool in its homeowners, mobilowners, personal auto, marine and farm lines of business. Numerous studies have verified the validity of insurance scoring as a predictor of future losses.

On January 12, 2005, the Governor of Michigan and the Commissioner of the Office of Financial and Insurance Services issued proposed rules to reduce base insurance rates and ban the use of insurance credit scores as a rating factor or as a basis to refuse to insure or limit coverage on personal insurance. Personal insurance includes private passenger automobile, homeowners, motorcycle, boat, personal watercraft, snowmobile, recreational vehicle, mobile-homeowners and non-commercial dwelling fire lines. The proposed ban was to be effective on July 1, 2005.

The Insurance Institute of Michigan (“IIM”), of which the Company is a member, mounted a legal challenge to the ban and filed a suit on March 25, 2005 seeking relief from the proposed ban. On April 25, 2005 the presiding judge issued a final order in the matter ofIIM et al v. OFIS, pertaining to insurers’ use of insurance credit scores to provide discounts on personal lines of insurance. In his final order the judge ruled in favor of IIM, stating that, “It is ordered that Plaintiff’s request for declaratory relief is granted, and the OFIS rules, R 500.2151-2155 are declared illegal, invalid and unenforceable. It is further ordered that Defendant is permanently enjoined from enforcing these rules against any Plaintiff in this action.” The Company was pleased with the outcome of the legal challenge and intends to continue to utilize insurance scoring as a pricing tool. The Commissioner of the OFIS has filed an appeal to this ruling in the Michigan Court of Appeals.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

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

NUMBER	TITLE
3.1	Articles of Incorporation of Fremont Michigan InsuraCorp, Inc. (Incorporated by reference to Exhibit 3.1 to Registration Statement No. 333-112414 on Form S-1).
3.2	Bylaws of Fremont Michigan InsuraCorp, Inc. (Incorporated by reference to Exhibit 3.2 to Registration Statement No. 333-112414 on Form S-1).
4.1	See Articles of Incorporation, filed as Exhibit 3.1

4.2	Shareholder Rights Agreement dated November 1, 2004 by and between the Company and Registrar and Transfer Company, as Rights Agent (Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 3, 2004).
4.3	Certificate of Adoption of Resolution Designating and Prescribing Rights, Preferences and Limitations of Junior Participating Preferred Stock (Incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 3, 2004).
31.1	Certification of President and Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Vice President and Treasurer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18 U.S.C. Section 1350.

(b)Reports on Form 8-K. The following reports on Form 8-K was filed during the period covered by this report:

In a report on Form 8-K dated May 13, 2005, the Company reported, under Item 2.02 “Results of Operations and Financial Condition”, a press release, dated May 13, 2005, announcing and commenting on its results of operations for the quarter and ended March 31, 2005.

In a report on Form 8-K dated May 26, 2005, the Company reported, under Item 4.01 “Changes in Registrant’s Certifying Accountant”, that the Audit Committee dismissed PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company. The Company also reported that the Audit Committee appointed BDO Seidman, LLP as the Company’s independent registered public accounting firm to audit the consolidated financial statements of the Company for the year ended December 31, 2005.

SIGNATURES

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

	FREMONT MICHIGAN INSURACORP, INC.
Date: August 12, 2005	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: August 12, 2005	By:	/s/ Marvin R. Deur
		Marvin R. Deur
		Vice President and Treasurer
		(principal financial officer)
Date: August 12, 2005	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President and Controller
		(principal accounting officer)