Fremont Michigan InsuraCorp (FMMH) 10-Q 2006 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, 2006

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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨                    Accelerated filer  ¨                    Non-accelerated filer  x

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

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 July 28, 2006
COMMON STOCK (No Par Value)	862,128
(Title of Class)	(Outstanding Shares)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregisterted Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
SIGNATURES		30

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

	June 30, 2006			December 31, 2005
Assets
Investments:
Fixed maturities available for sale, at fair value	$	40,961,654		$	41,644,429
Equity securities available for sale, at fair value		10,049,434			9,508,185
Mortgage loans on real estate from related parties		264,616			262,294
Total investments		51,275,704			51,414,908
Cash and cash equivalents		5,466,914			1,542,581
Premiums due from policyholders, net		7,226,531			7,143,537
Amounts due from reinsurers		6,096,962			7,499,227
Accrued investment income		402,467			402,937
Deferred policy acquisition costs		3,019,119			3,092,618
Deferred federal income taxes		3,848,229			3,774,445
Property and equipment, net of accumulated depreciation		1,345,425			1,082,547
Other assets		94,045			7,827
	$	78,775,396		$	75,960,627
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	19,954,016		$	18,866,814
Unearned premiums		19,801,802			20,437,157
Reinsurance funds withheld and premiums ceded payable		45,258			1,026,340
Accrued expenses and other liabilities		7,515,974			6,903,968
Surplus notes		2,890,288			2,890,288
Total liabilities		50,207,338			50,124,567
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		7,573,831			7,550,304
Retained earnings		21,377,750			18,296,080
Accumulated other comprehensive loss:
Net unrealized losses on investments, net of deferred federal income taxes		(383,523	)		(10,324	)
Total stockholders’ equity		28,568,058			25,836,060
Total liabilities and stockholders’ equity	$	78,775,396		$	75,960,627

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

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2006			2005		2006		2005
Revenues:
Net premiums earned	$	9,677,745		$	9,311,489	$	19,231,340	$	18,422,167
Net investment income		425,698			424,812		845,466		847,235
Net realized gains (losses) on investments		(22,792	)		362,111		295,711		382,420
Other income, net		102,038			98,656		198,251		193,911
Total revenues		10,182,689			10,197,068		20,570,768		19,845,733
Expenses:
Losses and loss adjustment expenses, net		4,645,431			5,189,001		9,179,624		11,012,258
Policy acquisition and other underwriting expenses		3,360,114			3,520,055		6,668,260		6,558,910
Interest expense		50,580			77,435		127,243		155,041
Total expenses		8,056,125			8,786,491		15,975,127		17,726,209
Income before federal income tax expense		2,126,564			1,410,577		4,595,641		2,119,524
Federal income tax expense		706,143			471,172		1,513,971		707,722
Net income	$	1,420,421		$	939,405	$	3,081,670	$	1,411,802
Net income per common share
Basic	$	1.65		$	1.09	$	3.57	$	1.64
Diluted	$	1.62		$	1.09	$	3.51	$	1.64

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

4

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

	Preferred Stock		Common Stock				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss			Total
			Class A		Class B
Balance, December 31, 2005	$	—	$	—	$	—	$	7,550,304	$	18,296,080	$	(10,324	)	$	25,836,060
Comprehensive income:
Net income										3,081,670					3,081,670
Net unrealized losses on investments, net of taxes												(373,199	)		(373,199	)
Total comprehensive income															2,708,471
Issuance of stock options								23,527							23,527
Balance, June 30, 2006	$	—	$	—	$	—	$	7,573,831	$	21,377,750	$	(383,523	)	$	28,568,058

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

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net income	$	3,081,670		$	1,411,802
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		178,500			78,610
Deferred federal income taxes		118,470			—
Stock based compensation expense		23,527			19,000
Net realized (gains) losses on investments		(295,711	)		(382,420	)
Net amortization of premiums on investments		110,030			118,780
Changes in assets and liabilities:
Premiums due from policyholders		(82,994	)		(29,864	)
Amounts due from reinsurers		1,402,265			1,693,293
Accrued investment income		470			35,877
Deferred policy acquisition costs		73,499			221,971
Other assets		(86,218	)		863
Losses and loss adjustment expenses		1,087,202			1,357,976
Unearned premiums		(635,355	)		(649,198	)
Reinsurance funds withheld and premiums ceded payable		(981,082	)		(542,587	)
Accrued expenses and other liabilities		612,006			(157,114	)
Net cash provided by operating activities		4,606,279			3,176,989
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		4,435,531			17,582,412
Proceeds from sales of equity investments		2,779,562			1,426,295
Purchases of fixed maturity investments		(4,688,657	)		(18,845,645	)
Purchases of equity investments		(2,764,682	)		(4,277,037	)
Decrease in receivable from investments		—			739,150
Repayment of mortgage loan on real estate from related party		—			1,954
Issuance of mortgage loan on real estate from related party		(2,322	)		(130,000	)
Purchase of equipment, net		(441,378	)		(50,295	)
Net cash used in investing activities		(681,946	)		(3,553,166	)
Cash flows from financing activities:		—			—
Net change in cash and cash equivalents		3,924,333			(376,177	)
Cash and cash equivalents, beginning of period		1,542,581			3,672,254
Cash and cash equivalents, end of period	$	5,466,914		$	3,296,077

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

6

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Fremont Michigan InsuraCorp, Inc. and subsidiary (collectively, the “Company”) includes Fremont Michigan InsuraCorp, Inc. (“FMIC”) and its wholly owned subsidiary Fremont Insurance Company (“FIC”). FIC is a Michigan licensed property and casualty insurance company 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, 2005.

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.

2. Recently Issued Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) 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 became effective for the Company as of January 1, 2006 and applies to all awards granted, modified, cancelled or repurchased after that date as well as the unvested portion of prior awards. The adoption did not have a material effect on the consolidated financial statements.

In June 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of FIN 48 will be effective for the Company beginning January 1, 2007. The Company is in the process of determining the effect, if any, the adoption of FIN 48 will have on our financial statements.

7

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 three and six months ended June 30, 2006 and 2005 is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Net income	$	1,420,421		$	939,405		$	3,081,670		$	1,411,802
Other comprehensive income:
Unrealized (loss) gain on investments arising during the period		(473,559	)		1,017,683			(269,742	)		172,369
Deferred income tax benefit (expense) of unrealized (loss) gain on investments arising during the period		161,010			(346,012	)		91,712			(58,605	)
Change in deferred tax valuation allowance		—			346,012			—			58,605
Unrealized (loss) gain on investments arising during the period, net of deferred income taxes and valuation allowance		(312,549	)		1,017,683			(178,030	)		172,369
Adjustment for pretax realized (gains) losses on investments included in net income (loss)		22,792			(362,111	)		(295,711	)		(382,420	)
Deferred income tax expense (benefit) of realized gains included in net income (loss)		(7,749	)		123,118			100,542			130,023
Change in deferred tax valuation allowance		—			(123,118	)		—			(130,023	)
		(297,506	)		655,572			(373,199	)		(210,051	)
Comprehensive income	$	1,122,915		$	1,594,977		$	2,708,471		$	1,201,751

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 three and six months ended June 30 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Numerator for basic and diluted net income per share:
Net income	$	1,420,421	$	939,405	$	3,081,670	$	1,411,802
Denominator:
Denominator for basic net income per share – weighted average shares outstanding		862,128		862,128		862,128		862,128
Effect of dilutive stock options		16,717		2,143		14,608		621
Denominator for diluted net income per share – adjusted weighted average shares outstanding		878,845		864,271		876,736		862,749
Basic net income per share	$	1.65	$	1.09	$	3.57	$	1.64
Diluted net income per share	$	1.62	$	1.09	$	3.51	$	1.64

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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. The separate financial information of these four major insurance lines is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer.

The Company evaluates product line profitability based on underwriting gain (loss). Certain expenses are allocated based on net premiums earned and net losses incurred. 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) or interest expense 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.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Revenues:
Net premiums earned:
Personal lines	$	6,348,157		$	5,993,618		$	12,547,135		$	11,815,612
Commercial lines		1,912,368			1,938,826			3,850,232			3,868,420
Farm		1,064,852			1,049,685			2,089,393			2,057,512
Marine		352,368			329,360			744,580			680,623
Total net premiums earned		9,677,745			9,311,489			19,231,340			18,422,167
Expenses:
Loss and loss adjustment expenses:
Personal lines		3,290,776			3,121,193			6,229,237			6,923,277
Commercial lines		762,595			1,311,178			2,129,434			2,686,358
Farm		320,890			390,780			543,286			811,225
Marine		271,170			365,850			277,667			591,398
Total loss and loss adjustment expenses		4,645,431			5,189,001			9,179,624			11,012,258
Policy acquisition and other underwriting expenses:
Personal lines		2,204,049			2,264,837			4,350,584			4,206,756
Commercial lines		663,998			733,673			1,335,027			1,377,287
Farm		369,704			396,384			724,474			732,543
Marine		122,363			125,161			258,175			242,324
Total policy acquisition and other underwriting expenses		3,360,114			3,520,055			6,668,260			6,558,910
Underwriting gain (loss):
Personal lines		853,332			607,588			1,967,314			685,579
Commercial lines		485,775			(106,025	)		385,771			(195,225	)
Farm		374,258			262,521			821,633			513,744
Marine		(41,165	)		(161,651	)		208,738			(153,099	)
Total underwriting gain		1,672,200			602,433			3,383,456			850,999
Net investment income		425,698			424,812			845,466			847,235
Net realized gains (losses) on investments		(22,792	)		362,111			295,711			382,420
Other income, net		102,038			98,656			198,251			193,911
Interest expense		(50,580	)		(77,435	)		(127,243	)		(155,041	)
Income before federal income taxes	$	2,126,564		$	1,410,577		$	4,595,641		$	2,119,524

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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 three and six months ended June 30 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2006			2005			2006			2005
Components of net periodic benefit cost:
Service cost	$	2,539		$	5,211		$	5,079		$	10,423
Interest cost		25,097			29,410			50,193			58,820
Amortization of unrecognized prior service cost		(21,421	)		(21,420	)		(42,841	)		(42,841	)
Amortization of unrecognized net actuarial loss		5,291			9,375			10,581			18,748
Net periodic benefit cost	$	11,506		$	22,576		$	23,012		$	45,150

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, 2006 the Company has made contributions to the plan of approximately $56,000. During 2006, the Company expects to contribute a total of $65,000 to the plan to cover anticipated benefit payments.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) introduced a prescription drug benefit under Medicare as well as a federal subsidy to qualifying sponsors of retiree healthcare benefit plans. The Company has determined that the Act will not 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 of the Act on the plan.

7. Reinsurance

Amounts ceded under the Company’s reinsurance agreements are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Ceded premiums earned	$	2,172,726	$	1,817,329	$	4,204,881	$	3,505,853
Ceded loss and loss adjustment expense	$	821,293	$	308,357	$	1,299,455	$	1,025,668

Effective March 31, 2006, the Company entered into a commutation agreement with respect to the 2003 multi-line net account quota share reinsurance agreement. As a result of this commutation, the funds withheld account liability was reduced by approximately $1,053,000 offset by an increase to the loss and loss adjustment expense liability of the same amount. No gain or loss was realized as a result of this commutation.

10

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

8. Federal Income Taxes

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006		2005
Current expense	$	619,095	$	471,172	$	1,395,502	$	707,722
Deferred expense		87,048		—		118,469		—
Total	$	706,143	$	471,172	$	1,513,971	$	707,722

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

	Three Months Ended June 30,										Six Months Ended June 30,
	2006					2005					2006					2005
Income before federal income taxes	$	2,126,564				$	1,410,577				$	4,595,641				$	2,119,524
Tax at statutory rate		723,032		34.0	%		479,596		34.0	%		1,562,518		34.0	%		720,638		34.0	%
Tax effect of:
Nontaxable investment income		(22,234	)	(1.0	%)		(16,802	)	(1.2	%)		(47,124	)	(1.0	%)		(20,347	)	(1.0	%)
Nondeductible expenses, net		1,774		—			6,471		0.5	%		5,440		0.1	%		7,418		0.4	%
Other, net		3,571		0.2	%		1,907		0.1	%		(6,863	)	(0.2	%)		13		—
Federal income tax expense	$	706,143		33.2	%	$	471,172		33.4	%	$	1,513,971		32.9	%	$	707,722		33.4	%

Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of June 30, 2006 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $3,098,000 of net operating loss carryforwards will not be realized and therefore a full valuation allowance will be maintained for the deferred tax asset associated with these amounts.

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2006 and December 31, 2005 the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

	June 30, 2006			December 31, 2005
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	508,646		$	436,552
Unearned premium reserves		1,374,279			1,397,087
Realized losses on investments		—			37,323
Unrealized losses on investments		197,573			5,319
Postretirement benefits accrued		931,572			933,782
Net operating loss carryforward		2,634,446			2,742,271
Capital loss carryforward		—			28,184
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		161,390			175,195
Total deferred federal income tax assets		6,165,603			6,113,410
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,059,672	)		(1,067,663	)
Property and equipment		(194,021	)		(202,860	)
Other deferred tax liabilities		(10,445	)		(15,206	)
Total deferred federal income tax liabilities		(1,264,138	)		(1,285,729	)
Net deferred federal income tax asset		4,901,465			4,827,681
Valuation allowance		(1,053,236	)		(1,053,236	)
Net deferred tax asset	$	3,848,229		$	3,774,445

12

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

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and the Notes thereto included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2005, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report.

Fremont Michigan InsuraCorp, Inc. (the “Company” or the “Holding Company”) and Fremont Insurance Company (the “Insurance Company”) may from time to time make written or oral “forward-looking statements,” including statements contained in our filings with the Securities and Exchange Commission (including this Quarterly Report on Form 10-Q and the exhibits hereto and thereto), in its reports to shareholders and in other communications by the 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.

Overview of Fremont Michigan InsuraCorp

Fremont Michigan InsuraCorp, Inc. is a holding company owning all of the outstanding shares of Fremont Insurance Company. Fremont Insurance Company is a Michigan licensed property and casualty insurer operating exclusively in the State of Michigan and

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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 130 years. We market policies through approximately 170 independent insurance agencies. 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. As of June 30, 2006, we had approximately 52,200 policies in force and assets of $78.8 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 and six month periods ended June 30, 2006 and 2005. 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.

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We have four business segments: personal, commercial, farm and marine. The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of June 30, 2006 and December 31, 2005 (in thousands):

	June 30, 2006		December 31, 2005
Reported losses
Personal	$	5,362	$	5,497
Commercial		3,769		2,642
Farm		1,002		1,444
Marine		852		770
		10,985		10,353
IBNR losses
Personal		4,235		3,870
Commercial		3,865		3,775
Farm		646		646
Marine		223		223
		8,969		8,514
Total
Personal		9,597		9,367
Commercial		7,634		6,417
Farm		1,648		2,090
Marine		1,075		993
	$	19,954	$	18,867

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, 2006 and December 31, 2005, was approximately $342,000 and $223,000, 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 any 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, 2006 and 2005.

During the six months ended June 30, 2006 there were no investments that the Company determined to be other than temporarily impaired. 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. At June 30, 2006 and December 31, 2005 gross unrealized losses on available for sale investments, which were not impaired, were approximately $1,580,000 and $818,000, 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 of agent commissions net of ceding commissions and premium taxes. 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,

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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, 2006 and December 31, 2005 were approximately $3,019,000 and $3,093,000, 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, 2006 and December 31, 2005, the Company’s recoverable from reinsurers was comprised of the following:

	June 30, 2006		December 31, 2005
Paid losses and LAE	$	911,639	$	1,353,467
Unpaid losses and LAE		4,966,373		5,933,469
Unearned premium		218,950		212,291
Amounts due from reinsurers	$	6,096,962	$	7,499,227

The effect of reinsurance on premiums written and earned for the three and six months ended June 30, 2006 and 2005 are as follows:

	Three Months Ended June 30,
	2006						2005
	Written			Earned			Written			Earned
Direct	$	13,221,896		$	11,837,374		$	12,432,850		$	11,109,975
Assumed		10,397			13,097			11,552			18,843
Ceded		(2,187,722	)		(2,172,726	)		(1,831,245	)		(1,817,329	)
Net premiums	$	11,044,571		$	9,677,745		$	10,613,157		$	9,311,489
	Six Months Ended June 30,
	2006						2005
	Written			Earned			Written			Earned
Direct	$	22,774,771		$	23,401,295		$	21,242,008		$	21,875,888
Assumed		26,095			34,926			36,814			52,132
Ceded		(4,211,540	)		(4,204,881	)		(3,511,331	)		(3,505,853	)
Net premiums	$	18,589,326		$	19,231,340		$	17,767,491		$	18,422,167

Income Taxes. Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of June 30, 2006 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $3,098,000 of net operating loss carryforwards will not be realized and therefore a full valuation allowance will be maintained for these amounts.

Description of Ratios Analyzed.In the analysis of our operating results that follows, we refer to various financial ratios and other measures that management uses to analyze and compare the underwriting results of our insurance operations. We calculate the loss and LAE ratio, policy acquisition and other underwriting expense ratio and combined ratio on a GAAP basis. As such, we

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calculate these ratios by using net premiums earned as the denominator. There have been no material changes to the calculation and use of these ratios during the most recent quarter. The Company also calculates underwriting gain (loss) on a GAAP basis. This measure equals the net premiums earned less loss and loss adjustment expenses as well as policy acquisition and other underwriting expenses. It is another measure used by management and insurance regulators to evaluate the underwriting performance of our insurance operations.

Results of Operations – Three Months Ended June 30, 2006 and 2005

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 operations for the three months ended June 30, 2006 and 2005. 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
	2006			2005			Dollar			Percentage
Underwriting gain (loss)
Personal	$	853,332		$	607,588		$	245,744		40.4	%
Commercial		485,775			(106,025	)		591,800		558.2	%
Farm		374,258			262,521			111,737		42.6	%
Marine		(41,165	)		(161,651	)		120,486		74.5	%
Total underwriting gain (loss)		1,672,200			602,433			1,069,767		177.6	%
Other revenue (expense) items
Net investment income		425,698			424,812			886		0.2	%
Net realized gains (losses) on investments		(22,792	)		362,111			(384,903	)	(106.3	%)
Other income		102,038			98,656			3,382		3.4	%
Interest expense		(50,580	)		(77,435	)		(26,855	)	(34.7	%)
Total other revenue (expense) items		454,364			808,144			(353,780	)	(43.8	%)
Income before federal income taxes		2,126,564			1,410,577			715,987		50.8	%
Federal income taxes		706,143			471,172			234,971		49.9	%
Net income	$	1,420,421		$	939,405		$	481,016		51.2	%

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended June 30, 2006 and 2005.

	2006			2005			Change			% Change
Direct premiums written	$	13,221,896		$	12,432,850		$	789,046		6.3	%
Net premiums written	$	11,044,571		$	10,613,157		$	431,414		4.1	%
Net premiums earned	$	9,677,745		$	9,311,489		$	366,256		3.9	%
Loss and LAE		4,645,431			5,189,001			(543,570	)	(10.5	%)
Policy acquisition and other underwriting expenses		3,360,114			3,520,055			(159,941	)	(4.5	%)
Underwriting gain (loss)	$	1,672,200		$	602,433		$	1,069,767		177.6	%
Loss and LAE ratio		48.0	%		55.7	%		(7.7	%)
Policy acquisition and other underwriting expense ratio		34.7	%		37.8	%		(3.1	%)
Combined ratio		82.7	%		93.5	%		(10.8	%)

Premiums. The property and casualty industry is affected by soft and hard market business cycles no different than most other industries. During a soft market price competition tends to increase as insurers are willing to reduce premium rates in order to maintain growth in premium volume. The soft market makes it more difficult to attract new business as well as retain exposures which are adequately priced. Although we recognize the need to remain competitive in the Michigan market during the current soft

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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:

	2006		2005		$ Change			% Change
Direct Premiums Written:
Personal	$	8,582,259	$	7,783,615	$	798,644		10.3	%
Commercial		2,489,762		2,622,384		(132,622	)	(5.1	%)
Farm		1,293,216		1,242,375		50,841		4.1	%
Marine		856,659		784,476		72,183		9.2	%
	$	13,221,896	$	12,432,850	$	789,046		6.3	%

The Michigan market continues to remain soft in both personal and commercial lines. However, even with the softness of the market, we were able to continue to increase direct premiums written by 6.3% driven primarily by growth in our personal lines segment. Direct premiums written for the personal segment increased 10.3%, as a result of continued growth of 23.4% in the personal auto line in addition to a 2.8% increase in the homeowners line. New business premium for personal auto increased 66% while renewal business increased 17.5%. The Company continues to experience strong growth in personal auto as a result of targeting those policyholders with which the Company only writes the homeowners policy. In this situation the Company is able to provide a multi-policy discount when we write both the automobile and homeowner policies. Growth in the homeowners line remained flat during the quarter as a result of the soft market conditions which are expected to continue throughout the year.

The commercial segment’s direct premiums written decreased 5.1% as a result of a drop in premium from commercial package policies (CPP). CPP policies cover larger commercial exposures as opposed to a businessowner policy (BOP) which is geared more towards small to medium sized commercial exposures. During the quarter CPP premiums decreased 10.4% driven primarily by the competitive pricing pressure in Michigan. Given the Company’s underwriting philosophy of ensuring that a risk is appropriately priced, growth in the CPP product line will remain a challenge in the near term. Despite the continued pricing pressure, the Company experienced growth of 5.6% in the BOP product line. Growth in the BOP line is attributable to the Company’s roll out of its web-based rating portal called Fremont Complete coupled with a continued marketing focus on the BOP product line. Fremont Complete allows agents to quote and bind new policies through the Company’s website. BOP is the first product line available through Fremont Complete. The Company expects to roll out personal auto during the third quarter with the homeowners product line to follow.

Farm direct premiums written increased 4.1% with new business premium down 6.1% while renewal premiums increased 5.0%. Direct premiums written for the marine segment increased 9.2%, with new business premiums down 11.3%, but renewal premiums increasing 15.2%.

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

	2006		2005		$ Change			% Change
Net Premiums Written:
Personal	$	7,046,047	$	6,558,115	$	487,932		7.4	%
Commercial		2,104,947		2,233,817		(128,870	)	(5.8	%)
Farm		1,139,553		1,116,728		22,825		2.0	%
Marine		754,024		704,497		49,527		7.0	%
	$	11,044,571	$	10,613,157	$	431,414		4.1	%

Net premiums written increased approximately $431,000 due to the overall increase in direct premiums written of $789,000 offset by growth in ceded premiums written under the Company’s reinsurance agreements of approximately $358,000.

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

	2006		2005		$ Change			% Change
Net Premiums Earned:
Personal	$	6,348,157	$	5,993,618	$	354,539		5.9	%
Commercial		1,912,368		1,938,826		(26,458	)	(1.4	%)
Farm		1,064,852		1,049,685		15,167		1.4	%
Marine		352,368		329,360		23,008		7.0	%
	$	9,677,745	$	9,311,489	$	366,256		3.9	%

Net premiums earned increased $366,000 due to growth in direct premiums earned of $727,000 offset by an increase of $361,000 in ceded premiums earned under the Company’s reinsurance agreements.

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

	2006			2005			$ Change			% Change
Loss and LAE:
Personal	$	3,290,776		$	3,121,193		$	169,583		5.4	%
Commercial		762,595			1,311,178			(548,583	)	(41.8	%)
Farm		320,890			390,780			(69,890	)	(17.9	%)
Marine		271,170			365,850			(94,680	)	(25.9	%)
	$	4,645,431		$	5,189,001		$	(543,570	)	(10.5	%)
Incurred Claim Count:
Personal		1,299			1,207			92		7.6	%
Commercial		158			166			(8	)	(4.8	%)
Farm		103			113			(10	)	(8.8	%)
Marine		54			64			(10	)	(15.6	%)
		1,614			1,550			64		4.1	%
Average Loss and LAE per Claim:
Personal	$	2,533		$	2,586		$	(53	)	(2.0	%)
Commercial		4,827			7,899			(3,072	)	(38.9	%)
Farm		3,115			3,458			(343	)	(9.9	%)
Marine		5,022			5,716			(695	)	(12.2	%)
	$	2,878		$	3,348		$	(470	)	(14.0	%)
Loss and LAE Ratio:
Personal		51.8	%		52.0	%
Commercial		39.9	%		67.6	%
Farm		30.1	%		37.2	%
Marine		77.0	%		111.0	%
		48.0	%		55.7	%

Overall the Company experienced a decline in loss and LAE of $544,000 and a decrease in the loss and LAE ratio of 7.7 percentage points. The favorable experience is due to a drop in claim severity in all segments despite an increase in total claim counts during the period. The loss and LAE ratio was also positively affected by the growth in net premium earned.

The decline in loss and LAE of approximately $549,000 for the commercial segment is due to a decline in claim severity experienced primarily in the commercial package policy line and to a lesser extent a small decrease in overall claim frequency. Both the farm and marine segments experienced a decline in their loss and LAE ratios. The decrease is due to fewer large losses occurring during the current quarter compared to the same period in 2005.

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

	2006			2005			Change			% Change
Amortization of deferred policy acquisition costs	$	1,716,546		$	1,601,467		$	115,079		7.2	%
Other underwriting expenses		1,643,568			1,918,588			(275,020	)	(14.3	%)
Total policy acquisition and other underwriting expenses	$	3,360,114		$	3,520,055		$	(159,941	)	(4.5	%)
Net premiums earned	$	9,677,745		$	9,311,389		$	366,356		3.9	%
Expense ratio		34.7	%		37.8	%		(3.1	%)

Amortization of deferred policy acquisition costs increased during the period in 2006 as compared to the same period in 2005 as a result of increased earned premium volume coupled with an increase in the premium tax component of deferred policy acquisition costs. Other underwriting expenses decreased 14.3% due to premium tax refunds received during the period on prior year amended returns, a decline in legal and auditing fees during the period compared to the prior year as well as a decline in assessments from the Michigan Basic Property Insurance Association.

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:

	2006			2005			Change			% Change
Gross investment income	$	499,762		$	493,223		$	6,539		1.3	%
Less: Investment expenses		74,064			68,411			5,653		8.3	%
Net investment income	$	425,698		$	424,812		$	886		0.2	%
Average invested assets (amortized cost basis)	$	54,819,896		$	47,584,311		$	7,235,585		15.2	%
Rate of return on average invested assets		3.1	%		3.6	%		(0.5	%)

Gross investment income increased $17,000 from fixed maturities and $17,000 from cash and cash equivalents while investment income from equities decreased $27,000 resulting in a total increase in gross investment income of $7,000. The increase in investment income from the fixed maturity portfolio was due to growth in fixed maturity invested assets which increased approximately 10% over the same time period. To a lesser extent, investment income from fixed maturities increased as a result of rising market interest rates from 2005 to 2006. As assets matured throughout the quarter, the Company was able to invest into higher yielding securities than those which had just matured. This incrementally increased the book yield of the portfolio, allowing the same portfolio to generate more income than in the previous year.

The increase in investment income from cash and cash equivalents is due to higher interest rates coupled with the fact that the Company held a higher balance of cash and cash equivalents during the three months ended June 30, 2006 compared to the same period in 2005. The decrease in investment income from the equity portfolio is largely driven by the shift within the portfolio from holding common and preferred stocks to holding mutual funds. Whereas common and preferred stocks typically provided quarterly dividend payments mutual funds do not provide dividend payments as frequently.

Investment expenses increased $6,000 during the three months ended June 30, 2006 as compared to the same period in 2005. The increase is a result of increased advisory fees due to the growth in invested assets coupled with an increase in operating expenses allocable to investment activities. The average invested asset balance (amortized cost basis), including cash and cash equivalents, increased $7.2 million primarily as a result of cash provided by operations from July 2005 through June 2006 which was placed into the investment portfolio.

During the three months ended June 30, 2006 the Company realized a net loss on the sale of equity securities of approximately $23,000. During the same period in 2005 the Company had a net realized gain of $100,000 on the sale of equity securities and a gain of $262,000 on the sale of fixed maturity securities. The decline in net realized gains is due to a drop in selling activity in the portfolio during the quarter. Beginning in 2005 and continuing through the end of the first quarter 2006 the Company shifted the holdings within the equity portfolio from common and preferred stocks to mutual funds. This was done in order to reduce the volatility

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associated with holding individual stocks. At June 30, 2006 the Company holds one common stock security while the remaining equity portfolio is invested in mutual funds. In addition, selling activity in the fixed maturity portfolio has dropped off given the decrease in fair values in the fixed maturity portfolio.

Interest Expense. Interest expense decreased from $77,000 to $51,000 for the three month period ended June 30, 2005 and 2006, respectively. The decrease is due to the fact that the Company is no longer incurring interest expense associated with the quota share funds withheld account balance. The quota share reinsurance contract, which was commuted as of March 31, 2006, was structured on a funds withheld basis and required the Company to accrue interest at an annual rate of 2.5%.

Income Tax Expense. During the three months ended June 30, 2006 the Company recorded income tax expense of approximately $706,000 resulting in an effective tax rate of 33.2%. The difference between the effective tax rate and the statutory tax rate of 34% is due primarily to non-taxable investment income. 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.

Results of Operations – Six Months Ended June 30, 2006 and 2005

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 operations for the six months ended June 30, 2006 and 2005. 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
	2006			2005			Dollar			Percentage
Underwriting gain (loss)
Personal	$	1,967,314		$	685,579		$	1,281,735		187.0	%
Commercial		385,771			(195,225	)		580,996		297.6	%
Farm		821,633			513,744			307,889		59.9	%
Marine		208,738			(153,099	)		361,837		236.3	%
Total underwriting gain (loss)		3,383,456			850,999			2,532,457		297.6	%
Other revenue (expense) items
Net investment income		845,466			847,235			(1,769	)	(0.2	%)
Net realized gains (losses) on investments		295,711			382,420			(86,709	)	(22.7	%)
Other income		198,251			193,911			4,340		2.2	%
Interest expense		(127,243	)		(155,041	)		(27,798	)	(17.9	%)
Total other revenue (expense) items		1,212,185			1,268,525			(56,340	)	(4.4	%)
Income before federal income taxes		4,595,641			2,119,524			2,476,117		116.8	%
Federal income taxes		1,513,971			707,722			806,249		113.9	%
Net income	$	3,081,670		$	1,411,802		$	1,669,868		118.3	%

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Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the six months ended June 30, 2006 and 2005.

	2006			2005			Change			% Change
Direct premiums written	$	22,774,771		$	21,242,008		$	1,532,763		7.2	%
Net premiums written	$	18,589,326		$	17,767,491		$	821,835		4.6	%
Net premiums earned	$	19,231,340		$	18,422,167		$	809,173		4.4	%
Loss and LAE		9,179,624			11,012,258			(1,832,634	)	(16.6	%)
Policy acquisition and other underwriting expenses		6,668,260			6,558,910			109,350		1.7	%
Underwriting gain (loss)	$	3,383,456		$	850,999		$	2,532,457		297.6	%
Loss and LAE ratio		47.7	%		59.8	%		(12.0	%)
Policy acquisition and other underwriting expense ratio		34.7	%		35.6	%		(0.9	%)
Combined ratio		82.4	%		95.4	%		(13.0	%)

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

	2006		2005		$ Change			% Change
Direct Premiums Written:
Personal	$	14,679,594	$	13,344,365	$	1,335,229		10.0	%
Commercial		4,605,009		4,620,663		(15,654	)	(0.3	%)
Farm		2,340,971		2,239,636		101,335		4.5	%
Marine		1,149,197		1,037,344		111,853		10.8	%
	$	22,774,771	$	21,242,008	$	1,532,763		7.2	%

The increase in direct premiums written of $1,533,000 or 7.2% is driven by continued growth in the personal auto product line within the personal segment. For the six months ended June 30, 2006 personal auto grew $1,139,000 or 20.9% over the same period in the prior year while the homeowners product line increased $202,000 or 3.0%. The commercial segment remained flat during the six month period due to the soft market, continued pricing pressure as well as an agency cancellation and underwriting actions taken in the prior year to non-renew larger commercial exposures deemed outside the Company’s target market. CPP premiums are down $131,000 or 5.7% however premiums from the BOP product line, which we are targeting and which offers the most growth potential in our target market, are up $122,000 or 9.6%. Beginning in April 2006 the Company rolled out its new web-basing rating portal called Fremont Complete which allows our agents to quote and bind policies. BOP is the first product line available on Fremont Complete and the Company expects to see increased growth as a result of the new web-based rating portal. Both the farm and marine segments have experienced increased premiums written driven primarily by an increase in renewal premiums offset by a reduction in new business as a result of the soft market.

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

	2006		2005		$ Change			% Change
Net Premiums Written:
Personal	$	11,762,684	$	10,977,389	$	785,295		7.2	%
Commercial		3,821,093		3,895,909		(74,816	)	(1.9	%)
Farm		2,005,143		1,969,993		35,150		1.8	%
Marine		1,000,406		924,200		76,206		8.2	%
	$	18,589,326	$	17,767,491	$	821,835		4.6	%

Net premiums written increased $822,000 due to the overall increase in direct premiums written of $1,533,000 offset by growth in ceded premiums written under the Company’s reinsurance agreements of approximately $711,000.

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

	2006		2005		$ Change			% Change
Net Premiums Earned:
Personal	$	12,547,135	$	11,815,612	$	731,523		6.2	%
Commercial		3,850,232		3,868,420		(18,188	)	(0.5	%)
Farm		2,089,393		2,057,512		31,881		1.5	%
Marine		744,580		680,623		63,957		9.4	%
	$	19,231,340	$	18,422,167	$	809,173		4.4	%

Net premiums earned increased $809,000 due to the overall increase in direct premiums earned of $1,525,000 offset by growth in ceded premiums earned under the Company’s reinsurance agreements of approximately $716,000.

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:

	2006			2005			$ Change			% Change
Loss and LAE:
Personal	$	6,229,237		$	6,923,277		$	(694,040	)	(10.0	%)
Commercial		2,129,434			2,686,358			(556,924	)	(20.7	%)
Farm		543,286			811,225			(267,939	)	(33.0	%)
Marine		277,667			591,398			(313,731	)	(53.0	%)
	$	9,179,624		$	11,012,258		$	(1,832,634	)	(16.6	%)
Incurred Claim Count:
Personal		2,415			2,149			266		12.4	%
Commercial		250			288			(38	)	(13.2	%)
Farm		171			170			1		0.6	%
Marine		77			73			4		5.5	%
		2,913			2,680			233		8.7	%
Average Loss and LAE per Claim:
Personal	$	2,579		$	3,222		$	(642	)	(19.9	%)
Commercial		8,518			9,328			(810	)	(8.7	%)
Farm		3,177			4,772			(1,595	)	(33.4	%)
Marine		3,606			8,101			(4,495	)	(55.5	%)
	$	3,151		$	4,109		$	(958	)	(23.3	%)
Loss and LAE Ratio:
Personal		49.6	%		58.6	%
Commercial		55.3	%		69.4	%
Farm		26.0	%		39.4	%
Marine		37.3	%		86.9	%
		47.7	%		59.8	%

Loss and LAE have decreased $1,833,000 or 16.6% for the six month period. The decline is due to a drop in claim severity across all segments despite an overall increase in claim frequency. The loss and LAE ratio also decreased due to the drop in severity coupled with an increase in net premiums earned for the period.

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

	2006			2005			$ Change			% Change
Amortization of deferred policy acquisition costs	$	3,391,101		$	3,099,264		$	291,837		9.4	%
Other underwriting expenses		3,277,159			3,459,646			(182,487	)	(5.3	%)
Total policy acquisition and other underwriting expenses	$	6,668,260		$	6,558,910		$	109,350		1.7	%
Net premiums earned	$	19,231,340		$	18,422,067		$	809,273		4.4	%
Expense ratio		34.7	%		35.6	%		(0.9	%)

Amortization of deferred policy acquisition costs increased during the period in 2006 as compared to the same period in 2005 as a result of increased earned premium volume coupled with an increase in the premium tax component of deferred policy acquisition costs. Other underwriting expenses decreased 5.3% due primarily to premium tax refunds received during the period on prior year amended returns as well as a decline in assessments from the Michigan Basic Property Insurance Association.

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:

	2006			2005			Change			% Change
Gross investment income	$	999,622		$	973,086		$	26,536		2.7	%
Less: Investment expenses		154,156			125,851			28,305		22.5	%
Net investment income	$	845,466		$	847,235		$	(1,769	)	(0.2	%)
Average invested assets (amortized cost basis)	$	55,147,923		$	47,359,628		$	7,788,295		16.4	%
Rate of return on average invested assets		3.1	%		3.6	%		(0.5	%)

Gross investment income increased $53,000 from fixed maturities and $28,000 from cash and cash equivalents while investment income from equities decreased $54,000 resulting in a total increase in gross investment income of $27,000. The increase in investment income from the fixed maturity portfolio was due to growth in fixed maturity invested assets which increased approximately 11% over the same time period. In addition, investment income from fixed maturities increased as a result of rising market interest rates from 2005 to 2006.

The increase in investment income from cash and cash equivalents is due to higher interest rates coupled with the fact that the Company held a higher balance of cash and cash equivalents during the six months ended June 30, 2006 compared to the same period in 2005. The decrease in investment income from the equity portfolio is largely driven by the shift within the portfolio from holding common and preferred stocks to holding mutual funds. Whereas common and preferred stocks typically provided quarterly dividend payments mutual funds do not provide dividend payments as frequently.

Investment expenses increased $28,000 during the six months ended June 30, 2006 as compared to the same period in 2005. The increase is a result of increased advisory fees due to the growth in invested assets coupled with an increase in operating expenses allocable to investment activities. The average invested asset balance (amortized cost basis), including cash and cash equivalents, increased $7.8 million primarily as a result of cash provided by operations from July 2005 through June 2006 which was placed into the investment portfolio. As a result of the aforementioned items the annualized rate of return on average invested assets decreased to 3.1% for the six months ended June 30, 2006 from 3.6% for the same period in 2005.

During the six months ended June 30, 2006 the Company realized net gains on the sale of equity securities of approximately $283,000 and $13,000 on the sale of fixed maturities. During the same period in 2005 the Company had a net realized gain of $113,000 on the sale of equity securities and $269,000 on the sale of fixed maturity securities. Realized gains from the sale of equities increased during the period as the Company continued to shift funds out of common and preferred stocks and into mutual funds. The decline in net realized gains on the fixed maturity portfolio is due to a drop in selling activity in the portfolio during the period. 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.

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Interest Expense. Interest expense decreased from $155,000 to $127,000 for the six month period ended June 30, 2005 and 2006, respectively. The decrease is due to the fact that the Company is no longer incurring interest expense associated with the quota share funds withheld account balance. The quota share reinsurance contract, which was commuted as of March 31, 2006, was structured on a funds withheld basis and required the Company to accrue interest at an annual rate of 2.5%.

Income Tax Expense. During the six months ended June 30, 2006 the Company recorded income tax expense of approximately $1,514,000 resulting in an effective tax rate of 32.9%. The difference between the effective tax rate and the statutory tax rate of 34% is due to non-taxable investment income. During the six months ended June 30, 2005 the Company recorded income tax expense of $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.

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 $4,606,000 and $3,177,000 for the six months ended June 30, 2006 and 2005, respectively, an increase of $1,429,000. During the six months ended June 30, 2006 as compared to the same period in 2005 net premiums collected increased $1,398,000, net loss and LAE payments decreased $189,000, policy acquisition and other underwriting expenses paid decreased $1,193,000, net cash used under the quota share funds withheld account decreased $222,000 and income taxes paid increased $1,550,000. Other cash used in operations increased $23,000 during the six months ended June 30, 2006 compared to the same period in 2005.

Cash flow used in investing activities decreased $2,871,000 during the six months ended June 30, 2006 compared to 2005.

Our debt structure consists of Series B Surplus Notes which carry a 7 percent interest rate and mature on September 30, 2007. At June 30, 2006 and December 31, 2005, 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.

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The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at June 30, 2006 and December 31, 2005 are as follows:

	June 30, 2006
	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	$	7,852,441	$	—	$	214,988	$	7,637,453
States and political subdivisions		7,615,404		—		270,583		7,344,821
Corporate securities		13,311,380		—		606,144		12,705,236
Mortgage-backed securities		13,738,692		1,199		465,747		13,274,144
		42,517,917		1,199		1,557,462		40,961,654
Common stocks and mutual funds		9,074,266		997,955		22,787		10,049,434
Total	$	51,592,183	$	999,154	$	1,580,249	$	51,011,088
	December 31, 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	$	7,598,104	$	2,977	$	97,817	$	7,503,264
States and political subdivisions		7,645,905		35		97,858		7,548,082
Corporate securities		15,101,502		34,317		323,027		14,812,792
Mortgage-backed securities		12,016,345		3,358		239,412		11,780,291
		42,361,856		40,687		758,114		41,644,429
Preferred stocks		426,200		—		5,600		420,600
Common stocks and mutual funds		8,380,201		761,894		54,510		9,087,585
		8,806,401		761,894		60,110		9,508,185
Total	$	51,168,257	$	802,581	$	818,224	$	51,152,614

At June 30, 2006, corporate securities accounted for 31% of our fixed maturity portfolio, mortgage backed securities were 32%, states and political subdivisions were 18% and U. S. government and government agency bonds were 19%. At June 30, 2006, our equity portfolio had a 100% concentration in the U.S. industrial and miscellaneous 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, 2006 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, 2006 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.

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The following table summarizes the length of time securities with unrealized losses at June 30, 2006 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	$	5,686,534	$	111,089	$	1,950,918	$	103,899	$	7,637,452	$	214,988
States and political subdivisions		4,924,447		177,510		2,420,374		93,073		7,344,821		270,583
Corporate securities		3,492,075		170,959		9,213,161		435,185		12,705,236		606,144
Mortgage-backed securities		7,084,217		191,970		6,134,651		273,777		13,218,868		465,747
		21,187,273		651,528		19,719,104		905,934		40,906,377		1,557,462
Common stocks and mutual funds		222,778		22,787		—		—		222,778		22,787
Total	$	21,410,051	$	674,315	$	19,719,104	$	905,934	$	41,129,155	$	1,580,249

Changes in Interest Rates

Fluctuations in near-term interest rates could have an impact on our results of operations and cash flows due to 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 six months ended June 30, 2006.

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 unrealized losses reflected in the balance sheet. As a result of the rising interest rate environment the portfolio duration has been reduced over the last 15 months in an effort to remove some of the interest rate risk present and minimize unrealized losses to the fixed maturity portfolio brought on by an increase in market-wide interest rates. 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. If interest rates continue 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 loss from $717,000 at December 31, 2005 to a net unrealized loss of $1,556,000 at June 30, 2006 is due to increasing interest rates during the period.

27

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%	$	37,671	$	(3,291	)
1%		39,324		(1,638	)
0		40,962		—
-1%		42,583		1,621
-2%		44,189		3,227

Credit Risk. At June 30, 2006, 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 3.80 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 and mutual funds. 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 Vice President of Finance, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company is party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any pending litigation to be material.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

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, 2006, the Insurance Company can pay a non-extraordinary dividend of up to $2,599,000 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

28

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 11, 2006, the following proposals were adopted by the margins indicated.

		Number of Shares
		Voted For	Withheld
Proposal 1:	Election of three Class III Directors for a term of three years and until their successors have been elected and qualified.
	Donald E. Bradford	730,290	18,346
	Richard E. Dunning	730,290	18,346
	William L. Johnson	741,331	7,305

		Number of Shares
		Voted For	Against	Abstain
Proposal 2:	Ratification of the Fremont Michigan InsuraCorp, Inc. Stock Incentive Plan of 2006.	301,624	18,397	1,500
Proposal 3:	Ratification of BDO Seidman, LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2006.	744,636	3,500	500

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS.

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

NUMBER	TITLE
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.

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SIGNATURES

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

	FREMONT MICHIGAN INSURACORP, INC.
Date: August 10, 2006	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: August 10, 2006	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance
		(principal financial and accounting officer)

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