Fremont Michigan InsuraCorp 10Q 2007 Q2 Quarterly report

UNITED STATES

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, 2007

¨	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., Fremont, Michigan		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

Indicate 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 1, 2007
COMMON STOCK (No Par Value)		1,727,456
(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 (unaudited)	5
	Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Consolidated Financial Statements (unaudited)	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	28
Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
Item 5.	Other Information	30
Item 6.	Exhibits	30

SIGNATURES		31

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)


	June 30, 2007		December 31, 2006
Assets
Investments:
Fixed maturities available for sale, at fair value	$	42,547,679	$	44,959,266
Equity securities available for sale, at fair value		11,935,345		11,689,756
Mortgage loans on real estate from related parties		257,292		260,808

Total investments		54,740,316		56,909,830
Cash and cash equivalents		7,872,738		4,598,843
Receivable from sale of investments		1,634,107		—
Premiums due from policyholders, net		7,831,013		7,528,683
Amounts due from reinsurers		7,926,126		7,883,153
Prepaid reinsurance premiums		252,782		404,016
Accrued investment income		466,780		447,411
Deferred policy acquisition costs		3,147,918		3,235,383
Deferred federal income taxes		2,939,005		3,070,713
Property and equipment, net of accumulated depreciation		2,006,786		1,771,323
Other assets		6,229		28,078

	$	88,823,800	$	85,877,433

Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	21,445,631	$	20,176,555
Unearned premiums		21,277,585		21,463,019
Reinsurance balances payable		125,796		50,313
Accrued expenses and other liabilities		6,425,330		6,867,081
Surplus notes		2,890,288		2,890,288

Total liabilities		52,164,630		51,447,256

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, 1,727,456 and 1,725,456 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		—		—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—		—
Additional paid-in capital		7,679,736		7,605,096
Retained earnings		27,426,468		25,511,413
Accumulated other comprehensive income		1,552,966		1,313,668

Total stockholders’ equity		36,659,170		34,430,177

Total liabilities and stockholders’ equity	$	88,823,800	$	85,877,433

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2007		2006			2007		2006
Revenues:
Net premiums earned	$	10,600,198	$	9,677,745		$	20,865,491	$	19,231,340
Net investment income		518,353		425,698			1,009,760		845,466
Net realized gains (losses) on investments		293,993		(22,792	)		321,972		295,711
Other income, net		111,298		102,038			215,704		198,251

Total revenues		11,523,842		10,182,689			22,412,927		20,570,768

Expenses:
Losses and loss adjustment expenses, net		6,085,947		4,645,431			11,916,617		9,179,624
Policy acquisition and other underwriting expenses		3,754,452		3,360,114			7,602,586		6,668,260
Interest expense		50,580		50,580			101,160		127,243

Total expenses		9,890,979		8,056,125			19,620,363		15,975,127

Income before federal income tax expense		1,632,863		2,126,564			2,792,564		4,595,641
Federal income tax expense		521,283		706,143			877,509		1,513,971

Net income	$	1,111,580	$	1,420,421		$	1,915,055	$	3,081,670

Earnings per share
Basic	$	.64	$	.82		$	1.11	$	1.79
Diluted	$	.63	$	.81		$	1.09	$	1.76

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)


	Preferred		Common Stock				Additional Paid-in		Retained		Accumulated Other Comprehensive
	Stock		Class A		Class B		Capital		Earnings		Income (Loss)			Total
Balance, December 31, 2006	$	—	$	—	$	—	$	7,605,096	$	25,511,413	$	1,313,668		$	34,430,177
Comprehensive income:
Net income										1,915,055					1,915,055
Net unrealized gains on investments, net of tax												260,876			260,876
Amortization of prior service credit, net of tax												(28,275	)		(28,275	)
Amortization of net actuarial loss, net of tax												6,697			6,697

Total comprehensive income															2,154,353
Stock-based compensation								53,084							53,084
Stock options exercised								10,000							10,000
Tax benefit from stock options exercised								11,556							— 11,556

Balance, June 30, 2007	$	—	$	—	$	—	$	7,679,736	$	27,426,468	$	1,552,966		$	36,659,170

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

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net income	$	1,915,055		$	3,081,670
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		510,499			178,500
Deferred federal income taxes		8,433			118,470
Stock based compensation expense		53,084			23,527
Net realized gains on investments		(321,972	)		(295,711	)
Net amortization of premiums on investments		100,813			110,030
Excess tax benefit from stock options exercised		(11,556	)		—
Changes in assets and liabilities:
Premiums due from policyholders		(302,330	)		(82,994	)
Amounts due from reinsurers		(42,973	)		1,408,924
Prepaid reinsurance premiums		151,234			(6,659	)
Accrued investment income		(19,369	)		470
Deferred policy acquisition costs		87,465			73,499
Other assets		21,849			(86,218	)
Losses and loss adjustment expenses		1,269,076			1,087,202
Unearned premiums		(185,434	)		(635,355	)
Reinsurance balances payable		75,483			(981,082	)
Accrued expenses and other liabilities		(462,889	)		612,006

Net cash provided by operating activities		2,846,468			4,606,279

Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		10,545,797			4,435,531
Proceeds from sales of equity investments		1,894,588			2,779,562
Purchases of fixed maturity investments		(8,743,460	)		(4,688,657	)
Purchases of equity investments		(914,501	)		(2,764,682	)
Increase in receivable from investments		(1,634,107	)		—
Repayment of mortgage loan on real estate from related party		3,516			—
Issuance of mortgage loan on real estate from related party		—			(2,322	)
Purchase of property and equipment, net		(745,962	)		(441,378	)

Net cash provided by (used in) investing activities		405,871			(681,946	)

Cash flows from financing activities:
Proceeds from exercised stock options		10,000			—
Tax benefit from exercised stock options		11,556			—

Net cash provided by financing activities		21,556			—

Net decrease in cash and cash equivalents		3,273,895			3,924,333
Cash and cash equivalents, beginning of period		4,598,843			1,542,581

Cash and cash equivalents, end of period	$	7,872,738		$	5,466,914

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, 2006.

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

The Company adopted the Financial Accounting Standards Board's (FASB) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN 48"), effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The adoption of FIN 48 did not have a material effect on our consolidated financial position or results of operations. See Note 8 for further discussion of the Company’s adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“Statement 157”). Statement 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Statement 157 applies under other accounting pronouncements that require fair value measurement in which the FASB concluded that fair value was the relevant measurement, but does not require any new fair value measurements. Statement 157 will be effective for the quarter ended March 31, 2008. The Company is currently evaluating the impact Statement 157 will have on the consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“Statement 159”). This statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain other items at fair value. Statement 159 will be effective for the quarter ended March 31, 2008. The Company is currently assessing the impact Statement 159 may have on the consolidated financial statements.

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 is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Net income	$	1,111,580		$	1,420,421		$	1,915,055		$	3,081,671
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments		162,231			(312,549	)		473,378			(178,030	)
Reclassification adjustment for realized (gain) loss on investments included in net income		(194,035	)		15,043			(212,502	)		(195,169	)
Amortization of prior service credit		(14,138	)		—			(28,275	)		—
Amortization of net actuarial loss		3,349			—			6,697			—

Other comprehensive income (loss), net of tax		(42,593	)		(297,506	)		239,298			(373,199	)

Comprehensive income	$	1,068,987		$	1,122,915		$	2,154,353		$	2,708,472

4.	Earnings 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,
	2007		2006		2007		2006
Numerator for basic and diluted earnings per share:
Net income	$	1,111,580	$	1,420,421	$	1,915,055	$	3,081,670

Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,727,456		1,724,256		1,727,036		1,724,256
Effect of dilutive stock options		37,638		33,433		36,706		29,788

Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,765,094		1,757,689		1,763,742		1,754,044

Basic earnings per share	$	0.64	$	0.82	$	1.11	$	1.79
Diluted earnings per share	$	0.63	$	0.81	$	1.09	$	1.76

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.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

The Company does not allocate assets, net investment income, net realized gains 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 as 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,
	2007			2006			2007			2006
Revenues:
Net premiums earned:
Personal lines	$	7,268,573		$	6,348,157		$	14,224,348		$	12,547,135
Commercial lines		1,854,498			1,912,368			3,660,053			3,850,232
Farm		1,096,363			1,064,852			2,175,883			2,089,393
Marine		380,764			352,368			805,207			744,580

Total net premiums earned		10,600,198			9,677,745			20,865,491			19,231,340

Expenses:
Loss and loss adjustment expenses:
Personal lines		4,278,062			3,290,776			8,443,345			6,229,237
Commercial lines		920,531			762,595			2,018,922			2,129,434
Farm		700,911			320,890			1,213,557			543,286
Marine		186,443			271,170			240,793			277,667

Total loss and loss adjustment expenses		6,085,947			4,645,431			11,916,617			9,179,624

Policy acquisition and other underwriting expenses:
Personal lines		2,575,307			2,204,049			5,182,808			4,350,584
Commercial lines		656,738			663,998			1,333,583			1,335,027
Farm		388,130			369,704			792,808			724,474
Marine		134,277			122,363			293,387			258,175

Total policy acquisition and other underwriting expenses		3,754,452			3,360,114			7,602,586			6,668,260

Underwriting gain (loss):
Personal lines		415,204			853,332			598,195			1,967,314
Commercial lines		277,229			485,775			307,548			385,771
Farm		7,322			374,258			169,518			821,633
Marine		60,044			(41,165	)		271,027			208,738

Total underwriting gain		759,799			1,672,200			1,346,288			3,383,456
Net investment income		518,353			425,698			1,009,760			845,466
Net realized gains (losses) on investments		293,993			(22,792	)		321,972			295,711
Other income, net		111,298			102,038			215,704			198,251
Interest expense		(50,580	)		(50,580	)		(101,160	)		(127,243	)

Income before federal income taxes	$	1,632,863		$	2,126,564		$	2,792,564		$	4,595,641

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,
	2007			2006			2007			2006
Components of net periodic benefit cost:
Service cost	$	2,894		$	2,539		$	5,789		$	5,079
Interest cost		26,231			25,097			52,462			50,193
Amortization of unrecognized prior service cost		(21,420	)		(21,421	)		(42,841	)		(42,841	)
Amortization of unrecognized net actuarial loss		5,074			5,291			10,147			10,581

Net periodic benefit cost	$	12,779		$	11,506		$	25,557		$	23,012

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, 2007 the Company has made contributions to the plan of approximately $52,000. During 2007, the Company expects to contribute a total of $54,000 to the plan to cover anticipated benefit payments.

7.	Reinsurance

The effect of reinsurance on premiums written and earned was as follows:


	Three Months Ended
	June 30, 2007						June 30, 2006
	Written			Earned			Written			Earned
Direct	$	14,536,048		$	13,098,330		$	13,221,896		$	11,837,374
Assumed		27,774			21,867			10,397			13,097
Ceded		(2,544,090	)		(2,519,999	)		(2,187,722	)		(2,172,726	)

Net premiums	$	12,019,732		$	10,600,198		$	11,044,571		$	9,677,745


	Six Months Ended
	June 30, 2007						June 30, 2006
	Written			Earned			Written			Earned
Direct	$	25,498,953		$	25,686,849		$	22,774,771		$	23,401,295
Assumed		42,155			39,693			26,095			34,926
Ceded		(4,889,567	)		(4,861,051	)		(4,211,540	)		(4,204,881	)

Net premiums	$	20,651,541		$	20,865,491		$	18,589,326		$	19,231,340

The effect of reinsurance on incurred losses was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Loss and LAE incurred	$	7,279,341		$	5,466,725		$	13,288,171		$	10,479,079
Reinsurance recoveries		(1,193,394	)		(821,294	)		(1,371,554	)		(1,299,455	)

Net loss and LAE incurred	$	6,085,947		$	4,645,431		$	11,916,617		$	9,179,624

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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.

8.	Federal Income Taxes

The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material effect on our consolidated financial position or results of operations. The Company evaluated all tax positions taken on its U.S. federal income tax return. No material uncertainties exist for any tax positions taken by the Company.

The Company files income tax returns in the U.S. federal jurisdiction. The Company is subject to U.S federal income tax examinations for all tax years from 1994 to the current year (with the exception of the 2002 tax year) due to the utilization of its net operating losses in current open tax years. The Company has not recently been examined by the Internal Revenue Service for any open tax year.

It is the Company’s policy to recognize interest and penalties related to uncertain tax positions in income tax expense.

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,
	2007			2006		2007		2006
Current expense	$	639,514		$	619,095	$	869,076	$	1,395,502
Deferred expense		(118,231	)		87,048		8,433		118,469

Total	$	521,283		$	706,143	$	877,509	$	1,513,971

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,
	2007					2006					2007					2006
Income before federal income taxes	$	1,632,863				$	2,126,564				$	2,792,564				$	4,595,641

Tax at statutory rate		555,173		34.0	%		723,032		34.0	%		949,472		34.0	%		1,562,518		34.0	%
Tax effect of :
Nontaxable investment income		(38,169	)	(2.3	%)		(22,234	)	(1.0	%)		(78,511	)	(2.8	%)		(47,124	)	(1.0	%)
Nondeductible expenses, net		1,005		0.1	%		1,774		—			3,274		0.1	%		5,440		0.1	%
Other, net		3,274		0.2	%		3,571		0.2	%		3,274		0.1	%		(6,863	)	(0.2	%)

Federal income tax expense	$	521,283		31.9	%	$	706,143		33.2	%	$	877,509		31.4	%	$	1,513,971		32.9	%

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 on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 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. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and futureprofitability and the overall prospects of our business, it has been determined that as of June 30, 2007 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the remaining net deferred tax asset.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

At June 30, 2007 and December 31, 2006 the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:


	June 30, 2007			December 31, 2006
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	422,559		$	421,360
Unearned premium reserves		1,473,336			1,470,987
Postretirement benefits accrued		673,593			667,021
Net operating loss carryforward		2,498,439			2,634,446
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		215,841			186,814

Total deferred federal income tax assets		5,641,465			5,738,325

Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,100,912	)		(1,120,000	)
Unrealized gains on investments		(540,685	)		(406,295	)
Property and equipment		(23,624	)		(107,254	)
Other deferred tax liabilities		(27,202	)		(24,026	)

Total deferred federal income tax liabilities		(1,692,423	)		(1,657,575	)

Net deferred federal income tax asset		3,949,042			4,080,750
Valuation allowance		(1,010,037	)		(1,010,037	)

Net deferred tax asset	$	2,939,005		$	3,070,713

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, 2006, 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 Company, which are made in good faith by the 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 fiscal, monetary and tax policies, 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;

•

technological change;

•

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 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 131 years. We market policies through approximately 170 independent insurance agencies. Fremont Insurance Company has a financial strength rating of “B++” (Good) by A.M. Best. 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, 2007, we had approximately 57,900 policies in force and assets of $88.8 million.

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 months ended June 30, 2007 and 2006. The Company’s fiscal year ends on December 31.

Critical Accounting Policies and Estimates

General. Our discussion and analysis of financial condition, results of operations and liquidity and capital resources is based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We generally base our estimates on historical experience or other appropriate assumptions that we believe are reasonable and relevant under the circumstances and evaluate them on an ongoing basis. The results of these estimation processes form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the critical accounting policies and estimates discussed below reflect our more significant judgments and estimates used in the preparation of the consolidated financial statements. These may be further commented upon in applicable sections on Results of Operations and Liquidity and Capital Resources that follow. These policies are more fully described below as well as in our 2006 Annual Report on Form 10-K. There have been no material changes to these policies during the most recent quarter.

Liabilities for Loss and Loss Adjustment Expenses. The liability for losses and loss adjustment expenses represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported. The amount of loss reserves for reported claims is based primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for unreported claims and loss adjustment expenses are determined using historical information by line of insurance as adjusted to current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews of historical reserving results over multiple years.

When a claim is reported to us, our claims representatives establish a “case reserve” for the estimated amount of the ultimate payment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of the estimator. The individual estimating the reserve considers the nature and value of the specific claim, the severity of injury or damage, and the policy provisions relating to the type of loss. Case reserves are adjusted by our claims staff as more information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain incurred but not reported (“IBNR”) reserves to provide for already incurred claims that have not yet been reported and developments on reported claims. The IBNR reserve is determined by estimating our ultimate net liability for both reported and unreported claims and then subtracting the case reserves and payments made to date for reported claims.

Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. Each quarter we review existing reserves, new claims, changes to existing case reserves and paid losses with respect to the current and prior accident years. In connection with the determination of the reserves we also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends with respect to theories of liability. We review our loss reserves to ascertain whether new developments have occurred which would require adjustment to our ultimate loss estimates. The quarterly review also involves roundtable discussion involving the claims, underwriting and accounting departments. Discussion is generally focused on claims involving liability and those claims that involve significant judgment. Because the establishment of loss reserves is an inherently uncertain process, we cannot be certain that ultimate losses will not exceed the established loss reserves and have a material adverse effect on the Company’s results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

Reserves are estimates because there are uncertainties inherent in the determination of ultimate losses. Court decisions, regulatory changes and economic conditions can affect the ultimate cost of claims that occurred in the past as well as create uncertainties regarding future loss cost trends. Accordingly, the ultimate liability for unpaid losses and loss adjustment expenses will likely differ from the amount recorded at June 30, 2007.

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, 2007 and December 31, 2006 (in thousands):


	June 30, 2007		December 31, 2006
Reported losses
Personal	$	6,833	$	6,094
Commercial		3,599		3,525
Farm		1,284		1,123
Marine		829		837

		12,545		11,579

IBNR losses
Personal		4,632		4,338
Commercial		3,520		3,520
Farm		486		486
Marine		263		254

		8,901		8,598

Total
Personal		11,465		10,432
Commercial		7,119		7,045
Farm		1,770		1,609
Marine		1,092		1,091

	$	21,446	$	20,177

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, 2007 and December 31, 2006, was approximately $165,000 and $208,000, respectively.

Investments.All of the Company’s investments are classified as available-for-sale and are those investments that would be available to be sold in response to the Company’s liquidity needs, changes in market interest rates and asset-liability management strategies, among others. Available-for-sale investments are recorded at fair value, with the corresponding unrealized appreciation or depreciation, net of deferred income taxes, reported as a component of accumulated other comprehensive income or loss until realized.

The Company reviews the status and market value changes of its investment portfolio each month, 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, the Company, in addition to an investment’s market price history and its intent and ability to hold fixed maturity investments until maturity, considers 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 market conditions, and analyst expectations, in their totality to reach its conclusions. When a security in the Company’s investment portfolio has an unrealized loss in value that is deemed to be other than temporary, the Company reduces the book value of such security to its current market value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments previously written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within stockholders’ equity.

Reinsurance.The Company accounts for reinsurance contracts under the provisions of Statement of Financial Accounting Standards (“SFAS”), No. 113, “Accounting and Reporting for Reinsurance on Short-Duration and Long-Duration Contracts.” Net premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned premiums ceded to them are reported as assets. Reinsurance assumed from other companies, including assumed premiums written and earned and losses and LAE, is accounted for in the same manner as direct insurance written.

Reinsurance recoverables include balances due from reinsurance companies for paid and unpaid losses and LAE that will be recovered from reinsurers, based on contracts in force. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk with respect to the individual reinsurer that participates in its ceded programs to minimize its exposure to significant losses from reinsurer insolvencies. When necessary the Company holds collateral in the form of letters of credit or trust accounts for amounts recoverable from reinsurers that are not considered authorized insurers by the State of Michigan Office of Financial and Insurance Services.

At June 30, 2007 and December 31, 2006, the Company’s recoverable from reinsurers was comprised of the following:


	June 30, 2007		December 31, 2006
Paid losses and LAE	$	594,529	$	853,132
Unpaid losses and LAE		7,331,597		7,030,021

Amounts due from reinsurers	$	7,926,126	$	7,883,153

Federal Income Taxes.Deferred federal income tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

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 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, 2007 and 2006

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 statements of income for the three months ended June 30, 2007 and 2006. 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
	2007			2006			Dollar			Percentage
Underwriting gain (loss)
Personal	$	415,204		$	853,332		$	(438,128	)	(51.3	%)
Commercial		277,229			485,775			(208,546	)	(42.9	%)
Farm		7,322			374,258			(366,936	)	(98.0	%)
Marine		60,044			(41,165	)		101,209		245.9	%

Total underwriting gain		759,799			1,672,200			(912,401	)	(54.6	%)
Other revenue (expense) items
Net investment income		518,353			425,698			92,655		21.8	%
Net realized gains on investments		293,993			(22,792	)		316,785		1389.9	%
Other income		111,298			102,038			9,260		9.1	%
Interest expense		(50,580	)		(50,580	)		—		0.0	%

Total other revenue (expense) items		873,064			454,364			418,700		92.2	%

Income before federal income taxes		1,632,863			2,126,564			(493,701	)	(23.2	%)
Federal income tax expense		(521,283	)		(706,143	)		184,860		(26.2	%)

Net income	$	1,111,580		$	1,420,421		$	(308,841	)	(21.7	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended June 30, 2007 and 2006.


	2007			2006			Change			% Change
Direct premiums written	$	14,536,048		$	13,221,896		$	1,314,152		9.9	%

Net premiums written	$	12,019,732		$	11,044,571		$	975,161		8.8	%

Net premiums earned	$	10,600,198		$	9,677,745		$	922,453		9.5	%
Loss and LAE		6,085,947			4,645,431			1,440,516		31.0	%
Policy acquisition and other underwriting expenses		3,754,452			3,360,114			394,338		11.7	%

Underwriting gain (loss)	$	759,799		$	1,672,200		$	(912,401	)	(54.6	%)

Loss and LAE ratio		57.4	%		48.0	%		9.4	%
Policy acquisition and other underwriting expense ratio		35.4	%		34.7	%		0.7	%
Combined ratio		92.8	%		82.7	%		10.1	%

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:


	2007		2006		$ Change		% Change
Direct Premiums Written:
Personal	$	9,774,955	$	8,582,259	$	1,192,696	13.9	%
Commercial		2,507,151		2,489,762		17,389	0.7	%
Farm		1,371,848		1,293,216		78,632	6.1	%
Marine		882,094		856,659		25,435	3.0	%

	$	14,536,048	$	13,221,896	$	1,314,152	9.9	%

Although the industry is experiencing the soft market we continue to generate solid top line growth in direct premiums written. During the 2007 quarter, we increased direct premiums written 9.9% with new business volume increasing 29.7% and renewal premium volume increasing 6.6%. Since March 31, 2007 our in-force policy count has increased 2.8%. Direct premiums written for the personal segment increased 13.9% over 2006, driven by the continued growth in the personal auto line which was up 27.9%. Personal auto new business was up 22.7% while renewal business increased 29%. Since March 31, 2007, the in-force policy count for personal auto increased 6.5%. The strong growth in personal auto is due to a combination of the ease of obtaining and issuing new policies through Fremont Complete, the Company’s web-based rating platform, along with competitive pricing on target market exposures. Direct premiums written for the homeowner product line was up 4.6%, driven by new business which was up 37.5% while renewal premium increased 0.3%. The increase in new business premium is due to a combination of the growth in personal auto and the associated multi-policy discount when both lines are written with the Company in addition to the enhanced automation of this line through Fremont Complete. Fremont Complete allows our independent agents to quote and issue policies in real-time which saves time for both the agent and the Company.

Direct premiums written for the commercial segment increased 0. 7%. Renewal business premium decreased 8.2% which can be attributed to the soft market and competitive pricing pressure. Despite the decline in renewal premiums new business premium was up 55.5% driven by a combination of additional talent in our commercial department, competitive products and a multi-policy strategy that provides discounts to commercial policyholders where the Company also writes the owner or principal’s personal lines insurance. Farm direct premiums written were up 6.1%, driven by both new and renewal premiums, which were up 32.3% and 4.1%, respectively. Direct premiums written for the marine segment increased 3.0%, driven by renewal premiums which were up 3.9%, with new business down 9.7%.

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


	2007		2006		$ Change		% Change
Net Premiums Written:
Personal	$	7,925,903	$	7,046,047	$	879,856	12.5	%
Commercial		2,114,574		2,104,947		9,627	0.5	%
Farm		1,202,595		1,139,553		63,042	5.5	%
Marine		776,660		754,024		22,636	3.0	%

	$	12,019,732	$	11,044,571	$	975,161	8.8	%

The increase in net premiums written is due to the overall increase in direct premiums written of $1,314,000 offset by a net increase of $339,000 in ceded and assumed premiums written under the Company’s reinsurance agreements.

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


	2007		2006		$ Change			% Change
Net Premiums Earned:
Personal	$	7,268,573	$	6,348,157	$	920,416		14.5	%
Commercial		1,854,498		1,912,368		(57,870	)	(3.0	%)
Farm		1,096,363		1,064,852		31,511		3.0	%
Marine		380,764		352,368		28,396		8.1	%

	$	10,600,198	$	9,677,745	$	922,453		9.5	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $1,261,000 offset by a net increase of $339,000 in ceded and assumed 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:


	2007			2006			$ Change			% Change
Loss and LAE:
Personal	$	4,278,062		$	3,290,776		$	987,286		30.0	%
Commercial		920,531			762,595			157,936		20.7	%
Farm		700,911			320,890			380,021		118.4	%
Marine		186,443			271,170			(84,727	)	(31.2	%)

	$	6,085,947		$	4,645,431		$	1,440,516		31.0	%

Incurred Claim Count:
Personal		1,759			1,299			460		35.4	%
Commercial		182			158			24		15.2	%
Farm		107			103			4		3.9	%
Marine		63			54			9		16.7	%

		2,111			1,614			497		30.8	%

Average Loss and LAE per Claim:
Personal	$	2,432		$	2,533		$	(101	)	(4.0	%)
Commercial		5,058			4,827			231		4.8	%
Farm		6,551			3,115			3,435		110.3	%
Marine		2,959			5,022			(2,062	)	(41.1	%)

	$	2,883		$	2,878		$	5		0.2	%

Loss and LAE Ratio:
Personal		58.9	%		51.8	%
Commercial		49.6	%		39.9	%
Farm		63.9	%		30.1	%
Marine		49.0	%		77.0	%

		57.4	%		48.0	%

The increase in the personal segments loss and LAE was driven by higher losses in the homeowners and personal auto product lines. During the 2007 quarter, homeowners experienced an 11% increase in claim count while the average claim cost incurred increased 53%. The higher losses were driven primarily by more fire and water damage related losses as compared to the activity during the 2006 quarter. Personal auto experienced a 55% increase in claim count during the quarter while the average claim cost incurred dropped 35%. The majority of the personal auto claim activity was focused in auto physical damage which typically results in high frequency and low severity claim activity. The growth in auto physical damage claims is driven by the premium volume growth in personal auto which was up 27.9% during the 2007 quarter. The increase in the personal segments loss and LAE ratio was driven by the increased losses in the homeowner line. The increase in the commercial segments incurred loss and LAE and the loss ratio was driven by higher claim severity primarily from fire related losses experienced during the quarter. The farm segment was also negatively impacted by increased fire losses during the 2007 quarter which increased the incurred losses and LAE as well as the loss ratio. The marine segment experienced a mild quarter from a loss standpoint. Despite the fact that the month of May marks the beginning of the peak boating season in Michigan we did not experience the loss activity that was experienced during the 2006 quarter.

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


	2007			2006			Change			% Change
Amortization of deferred policy acquisition costs	$	1,855,441		$	1,716,546		$	138,895		8.1	%
Other underwriting expenses		1,899,011			1,643,568			255,443		15.5	%

Total policy acquisition and other underwriting expenses	$	3,754,452		$	3,360,114		$	394,338		11.7	%

Net premiums earned	$	10,600,198		$	9,677,745		$	922,453		9.5	%

Expense ratio		35.4	%		34.7	%		0.7	%

Amortization of deferred policy acquisition costs increased during the second quarter of 2007 as compared to the same period in 2006 as a result of increased earned premium. The increase in other underwriting expenses was caused by increased compensation expense ($66,000), higher depreciation ($121,000) and increased survey and inspection fees ($42,000) offset by lower marketing and advertising costs ($70,000). Furthermore, in the 2006 quarter, other underwriting expenses included approximately $89,000 in premium tax refunds on prior year amended returns. Compensation expense increased due to annual merit increases, an increase in compensation allocated to other underwriting expenses and increased expense associated with the vesting of stock options. Survey and inspection fees increased as a result of the growth in the personal auto line. The Company obtains various types of underwriting reports including driving records and motor vehicle reports when underwriting a personal auto policy.

The increase in depreciation is driven by the Company’s continued investment in its web-based rating platform – Fremont Complete. Fremont Complete is a significant technological step forward for the Company and provides a strong foundation for future growth. Not only does the rating platform enhance the ‘ease of doing business’ with our agency force it also provides a direct inter-phase between our independent agents’ management systems and the Company’s policy processing system.

At June 30, 2007, the following product lines were available through Fremont Complete: personal auto, businessowners, homeowners and marine. We have invested over $1,673,000 in Fremont Complete since development began in late 2005. We continue to receive positive feedback from our agency force. More importantly, we continue to experience growth in the product lines which are available through Fremont Complete. Moving forward we continue to evaluate adding additional product lines to the web-based platform. The Company recognizes the fact that the additional depreciation of the development costs puts pressure on our expense ratio over the short term particularly during the current soft market. However, from a longer term perspective Fremont Complete provides a robust processing infrastructure which is necessary for the Company to achieve its long-term growth goals.

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


	2007			2006			Change			% Change
Fixed maturities	$	517,487		$	424,722		$	92,765		21.8	%
Equity securities		8,770			8,114			656		8.1	%
Cash and cash equivalents		68,465			66,926			1,539		2.3	%

Gross investment income		594,722			499,762			94,960		19.0	%
Less: Investment expenses		(76,369	)		(74,064	)		2,305		3.1	%

Net investment income	$	518,353		$	425,698		$	92,655		21.8	%

Average invested assets (amortized cost basis)	$	60,322,852		$	54,819,896		$	5,502,956		10.0	%

Rate of return on average invested assets		3.4	%		3.1	%		0.3	%

In the second quarter of 2007, gross investment income from fixed maturities was $93,000 higher than in the same period in 2006. This increase was driven by two factors: growth in invested assets from 2006 to 2007 and reinvestment of cash flows at higher market yields. During the quarter the Company increased its holdings in tax-exempt securities by selling lower yielding taxable and tax exempt securities and reinvesting the proceeds at higher yields. The average tax equivalent book yield on the purchases was 6.36%. The tax equivalent book yield of the fixed maturity portfolio increased 19 basis points from 4.93%, as of March 31, 2007, to 5.12%, as of June 30, 2007, as a result of the bond swap. The tax equivalent book yield at June 30, 2007 has increased 44 basis points over the June 30, 2006 yield of 4.68%.

Investment expenses increased slightly as a result of advisory fees which increased due to an increase in assets under management by the Company’s investment advisors. As a result of the items above, the annualized rate of return on average invested assets increased to 3.4% during the second quarter of 2007 from 3.1% during the same period in 2006.

During the three months ended June 30, 2007 the Company generated net realized gains from the equity portfolio of approximately $507,000 offset by realized losses of $213,000 from the fixed maturity portfolio for a combined net realized gain of $294,000. 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 2007 quarter, the Company rebalanced the equity portfolio and took advantage of the unrealized market value appreciation and shifted approximately $1,000,000 from the equity portfolio into cash equivalents to be used for the surplus note repayment on September 30, 2007.

Furthermore, during the 2007 quarter the Company increased its holdings in tax exempt municipals in order to take advantage of the higher tax equivalent yields in that sector. This was accomplished by selling both corporate securities and other tax exempt municipals which had lower yields. The shift resulted in net realized losses of $213,000. At June 30, 2007 the fixed maturity portfolio had an effective duration of 4.34 years and a tax equivalent book yield of 5.12% compared to an effective duration of 3.8 years and a tax equivalent book yield of 4.93% at March 31, 2007.

Interest Expense. Interest expense remained consistent during the three months ended June 30, 2007 as compared to the same period in 2006 as there was no change in the outstanding balance of the Company’s surplus notes.

Income Tax Expense. During the three months ended June 30, 2007 and 2006 the Company recorded income tax expense of approximately $521,000 and $706,000, respectively. The decrease is due to a decline in pre-tax income in the 2007 period compared to the prior year period. The effective tax rate for the three months ended June 30, 2007 was 31.9% compared to 33.2% in the prior year period. The decrease in the effective tax rate is due increased tax-exempt interest income received during the second quarter of 2007 compared to 2006.

Results of Operations – Six Months Ended June 30, 2007 and 2006

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 statements of income for the six months ended June 30, 2007 and 2006. 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
	2007			2006			Dollar			Percentage
Underwriting gain (loss)
Personal	$	598,195		$	1,967,314		$	(1,369,119	)	(69.6	%)
Commercial		307,548			385,771			(78,223	)	(20.3	%)
Farm		169,518			821,633			(652,115	)	(79.4	%)
Marine		271,027			208,738			62,289		29.8	%

Total underwriting gain		1,346,288			3,383,456			(2,037,168	)	(60.2	%)
Other revenue (expense) items
Net investment income		1,009,760			845,466			164,294		19.4	%
Net realized gains (losses) on investments		321,972			295,711			26,261		8.9	%
Other income		215,704			198,251			17,453		8.8	%
Interest expense		(101,160	)		(127,243	)		26,083		(20.5	%)

Total other revenue (expense) items		1,446,276			1,212,185			234,091		19.3	%

Income before federal income taxes		2,792,564			4,595,641			(1,803,077	)	(39.2	%)
Federal income tax benefit (expense)		(877,509	)		(1,513,971	)		636,462		(42.0	%)

Net income	$	1,915,055		$	3,081,670		$	(1,166,615	)	(37.9	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the six months ended June 30, 2007 and 2006.


	2007			2006			Change			% Change
Direct premiums written	$	25,498,953		$	22,774,771		$	2,724,182		12.0	%

Net premiums written	$	20,651,541		$	18,589,326		$	2,062,215		11.1	%

Net premiums earned	$	20,865,491		$	19,231,340		$	1,634,151		8.5	%
Loss and LAE		11,916,617			9,179,624			2,736,993		29.8	%
Policy acquisition and other underwriting expenses		7,602,586			6,668,260			934,326		14.0	%

Underwriting gain (loss)	$	1,346,288		$	3,383,456		$	(2,037,168	)	(60.2	%)

Loss and LAE ratio		57.1	%		47.7	%		9.4	%
Policy acquisition and other underwriting expense ratio		36.4	%		34.7	%		1.8	%
Combined ratio		93.5	%		82.4	%		11.1	%

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


	2007		2006		Change			% Change
Direct Premiums Written:
Personal	$	17,328,181	$	14,679,594	$	2,648,587		18.0	%
Commercial		4,525,575		4,605,009		(79,434	)	(1.7	%)
Farm		2,429,423		2,340,971		88,452		3.8	%
Marine		1,215,774		1,149,197		66,577		5.8	%

	$	25,498,953	$	22,774,771	$	2,724,182		12.0	%

Despite the soft market for both personal and commercial lines, we continue to generate solid growth in direct premiums written evidenced by a 12% increase in premium volume for the first six months of 2007. New business volume is up 38.4% while renewal volume grew 7.8%. Except for commercial lines, all lines are showing positive growth for the first half of 2007. While commercial premium volume is down 1.7%, this is a marked improvement over the first quarter results (down 4.6% as of March 31, 2007).

Within the personal segment, personal auto continues to lead the way in terms of growth and is up 31.6% through June 30, 2007. Personal auto new premium volume is up 49.1% and renewal volume is up 28.5%. Homeowner new and renewal business are up 47.5% and 2.4% respectively. One of the main contributing factors to the strong growth in new business for both personal auto and homeowners is the Company’s web-based rating platform – Fremont Complete. From a personal lines standpoint, the Company’s independent agents are now able to quote and issue homeowner and personal auto policies through Fremont Complete which is a significant driver behind the premium growth in the personal segment.

While the commercial segment is down 1.7%, new business was strong with a 35% increase; however, renewals were down 7.7% which is attributed to both the soft market and the slow Michigan economy. As noted in the first quarter, there was a $60,000 audit premium reduction on one of our larger accounts due to decreased payroll which negatively impacted our commercial renewal premiums during the six month period ended June 30, 2007. Farm direct premiums are up 3.8%, driven by an increase of 16.7% in new business premiums and a 2.8% increase in renewal premiums. Direct premiums written for marine business is up 5.8%, driven by renewal premiums which are up 6.5%, with new business down 4.0%. Total in-force policy count continues to grow and is up 5.6% over the in-force policy count as of December 31, 2006.

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


	2007		2006		Change			% Change
Net Premiums Written:
Personal	$	13,762,591	$	11,762,684	$	1,999,907		17.0	%
Commercial		3,741,440		3,821,093		(79,653	)	(2.1	%)
Farm		2,086,889		2,005,143		81,746		4.1	%
Marine		1,060,621		1,000,406		60,215		6.0	%

	$	20,651,541	$	18,589,326	$	2,062,215		11.1	%

The increase in net premiums written is due to the overall increase in direct premiums written of $2,724,000 offset by an increase of $662,000 in ceded premiums written under the Company’s reinsurance agreements.

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


	2007		2006		Change			% Change
Net Premiums Earned:
Personal	$	14,224,348	$	12,547,135	$	1,677,213		13.4	%
Commercial		3,660,053		3,850,232		(190,179	)	(4.9	%)
Farm		2,175,883		2,089,393		86,490		4.1	%
Marine		805,207		744,580		60,627		8.1	%

	$	20,865,491	$	19,231,340	$	1,634,151		8.5	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $2,285,000 offset by an increase of $651,000 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 six months ended June 30 are shown in the tables below:


	2007			2006			Change			% Change
Loss and LAE:
Personal	$	8,443,345		$	6,229,237		$	2,214,108		35.5	%
Commercial		2,018,922			2,129,434			(110,512	)	(5.2	%)
Farm		1,213,557			543,286			670,271		123.4	%
Marine		240,793			277,667			(36,874	)	(13.3	%)

	$	11,916,617		$	9,179,624		$	2,736,993		29.8	%

Incurred Claim Count:
Personal		3,058			2,415			643		26.6	%
Commercial		290			250			40		16.0	%
Farm		149			171			(22	)	(12.9	%)
Marine		88			77			11		14.3	%

		3,585			2,913			672		23.1	%

Average Loss and LAE per Claim:
Personal	$	2,761		$	2,579		$	182		7.0	%
Commercial		6,962			8,518			(1,556	)	(18.3	%)
Farm		8,145			3,177			4,968		156.4	%
Marine		2,736			3,606			(870	)	(24.1	%)

	$	3,324		$	3,151		$	173		5.5	%

Loss and LAE Ratio:
Personal		59.4	%		49.6	%
Commercial		55.2	%		55.3	%
Farm		55.8	%		26.0	%
Marine		29.9	%		37.3	%

		57.1	%		47.7	%

The personal segment experienced an increase in incurred loss and loss adjusting expense as well as the loss and LAE ratio driven by increased severity in the homeowner product line coupled with increased claim frequency in the personal auto line. Incurred losses for homeowners and personal auto increased $1,646,000 and $549,000, respectively, during the six months ended June 30, 2007 compared to 2006. The homeowner line experienced increased loss severity as a result of snow and ice damage as well as water damage losses as a result of the colder winter weather experienced during the first quarter 2007. In addition, the Company experienced an increase in fire related losses during the six month period in 2007 as compared to 2006. During the first quarter of 2007 Michigan experienced a more normalized winter weather pattern evidenced by consistent below-freezing temperatures and significant snow accumulation. During the first quarter of 2006 Michigan did not experience the consistent below freezing temperatures as those experienced in 2007 which resulted in lower claim severity in 2006. Loss and LAE from personal auto increased due to increased frequency driven by volume growth in this line. The personal auto line’s direct premiums written increased 31.6% during the first six months of 2007 as compared to 2006. Furthermore, the majority of the increase in the incurred claim count for the personal segment was from increased personal auto claims particularly auto physical damage. The commercial segment experienced a decline in incurred loss and LAE as well as the loss and LAE ratio due to a drop in claim severity. The farm segment experienced higher loss and LAE during the quarter due to an increase in losses attributable to the weather conditions and fire losses experienced in the 2007 period.

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


	2007			2006			Change			% Change
Amortization of deferred policy acquisition costs	$	3,655,434		$	3,391,101		$	264,333		7.8	%
Other underwriting expenses		3,947,152			3,277,159			669,993		20.4	%

Total policy acquisition and other underwriting expenses	$	7,602,586		$	6,668,260		$	934,326		14.0	%

Net premiums earned	$	20,865,491		$	19,231,340		$	1,634,151		8.5	%

Expense ratio		36.4	%		34.7	%		1.8	%

Amortization of deferred policy acquisition costs increased during the second quarter of 2007 as compared to the same period in 2006 as a result of increased net earned premium volume. The increase in other underwriting expenses was caused by increased compensation expense ($152,000), higher depreciation ($229,000) and increased legal and auditing fees ($121,000) offset by lower marketing and advertising costs ($52,000). Furthermore, in 2006 other underwriting expenses were lower by approximately $257,000 due to premium tax refunds received on prior year amended returns. Compensation expense increased due to annual merit increases, an increase in compensation allocated to other underwriting expenses and increased expense associated with the vesting of stock options.

The increase in depreciation is due to the Company’s continued investment in its web-based rating platform – Fremont Complete. Fremont Complete is a significant technological step forward for the Company and provides a strong foundation for future growth. Not only does the rating platform enhance the ‘ease of doing business’ with our agency force it also provides a direct inter-phase between our independent agents’ management systems and the Company’s policy processing system.


	2007			2006			Change			% Change
Fixed maturities	$	1,040,586		$	873,812		$	166,774		19.1	%
Equity securities		20,089			29,103			(9,014	)	(31.0	%)
Cash and cash equivalents		103,638			96,707			6,931		7.2	%

Gross investment income		1,164,313			999,622			164,691		16.5	%
Less: Investment expenses		(154,553	)		(154,156	)		397		0.3	%

Net investment income	$	1,009,760		$	845,466		$	164,294		19.4	%

Average invested assets (amortized cost basis)	$	60,768,246		$	55,147,923		$	5,620,323		10.2	%

Rate of return on average invested assets		3.3	%		3.1	%		0.3	%

For the six months ended June 30, 2007, gross investment income from fixed maturities increased 19.1% over the same period in 2006. The increase is driven by higher average invested assets in the fixed maturity portfolio which were 9% higher in 2007 coupled with higher investment yields. 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. During the six months ended June 30, 2006 the Company received dividends from common and preferred stocks it held during this time. Whereas during the six months ended June 30, 2007 the Company only held mutual funds which typically do not pay dividends. Investment income from cash and cash equivalents was higher during 2007 due to higher yields and the fact that the Company increased its holding of shorter term cash equivalents in contemplation of paying off the surplus notes in September 2007. As a result of the items above, the annualized rate of return on average invested assets increased to 3.3% during 2007 from 3.1% during the same period in 2006.

During the six months ended June 30, 2007 the Company recorded net realized gains from the equity portfolio of approximately $535,000 and net realized losses for the fixed maturity portfolio of $213,000. During the six months ended June 30, 2006 the Company realized a net gain on the sale of equity and fixed maturity and securities of approximately $283,000 and $13,000, respectively. Realized gains from equity securities were higher during 2007 as a result of the Company rebalancing the equity portfolio and taking advantage of the unrealized market value appreciation. During the 2007 period the Company shifted approximately $1,000,000 from the equity portfolio into cash equivalents to be used for the surplus note repayment on September 30, 2007. The equity sales generated approximately $535,000 in realized gains.

During 2007, the Company increased its holdings in tax exempt municipals in order to take advantage of the higher tax equivalent yields in that sector. This was accomplished by selling both corporate securities and other tax exempt municipals which had lower yields. The shift resulted in net realized losses of $213,000. At June 30, 2007 the fixed maturity portfolio had an effective duration of 4.34 years and a tax equivalent book yield of 5.12% compared to an effective duration of 3.96 years and a tax equivalent book yield of 4.87% at December 31, 2007.

Interest Expense. Interest expense decreased $26,000 during the six months ended June 30, 2007 as compared to the same period in 2006. The decrease is due to the fact that the Company is no longer incurring interest expense related to the funds withheld account balance associated with the previously commuted quota share reinsurance agreement. The quota share reinsurance contract, which was commuted on 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, 2007 and 2006 the Company recorded income tax expense of approximately $878,000 and $1,514,000 respectively. The decrease is due to a decline in pre-tax income in the 2007 period compared to the prior year period. The effective tax rate for the six months ended June 30, 2007 was 31.4% compared to 32.9% in the prior year period. The decrease in the effective tax rate is due increased tax-exempt interest income received during the second quarter of 2007 compared to 2006.

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 $2,846,000 and $4,606,000 for the six months ended June 30, 2007 and 2006, respectively, a decrease of $1,760,000. During the six months ended June 30, 2007 as compared to the same period in 2006, net premiums collected increased $1,944,000, net loss and LAE payments increased $2,904,000, policy acquisition and other underwriting expenses paid increased $1,461,000 and federal income taxes paid decreased $400,000. Other cash provided by operations increased $261,000 during the six months ended June 30, 2007 compared to the same period in 2006.

During the six months ended June 30, 2007 cash flow provided by investing activities was $406,000 while during the same period in 2006 cash flow used in investing activities was $682,000. The shift in cash flow provided by investing activities is due to the increased selling activity within the investment portfolio in 2007 compared to 2006 offset by increased expenditures for equipment and software.

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, 2007 and December 31, 2006, there were $2,890,000 Series B Surplus Notes outstanding. The Company intends to repay the surplus notes at maturity with existing funds held in cash and cash equivalents coupled with cash generated from operations.

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, 2007 and December 31, 2006 are as follows:


	June 30, 2007
	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	$	4,562,339	$	445	$	95,177	$	4,467,607
States and political subdivisions		15,692,373		25,744		206,572		15,511,545
Corporate securities		8,853,625		—		241,477		8,612,148
Mortgage-backed securities		14,289,240		5,329		338,190		13,956,379

		43,397,577		31,518		881,416		42,547,679

Equity securities - mutual funds		9,495,196		2,440,330		181		11,935,345

Total	$	52,892,773	$	2,471,848	$	881,597	$	54,483,024


	December 31, 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	$	6,074,385	$	2,756	$	87,898	$	5,989,243
States and political subdivisions		13,414,841		37,133		47,155		13,404,819
Corporate securities		11,058,724		901		305,359		10,754,266
Mortgage-backed securities		14,965,481		69,226		223,769		14,810,938

		45,513,431		110,016		664,181		44,959,266

Equity securities - common stocks and mutual funds		9,940,606		1,756,784		7,634		11,689,756

Total	$	55,454,037	$	1,866,800	$	671,815	$	56,649,022

At June 30, 2007, corporate securities accounted for 20% of our fixed maturity portfolio, mortgage backed securities were 33%, states and political subdivisions (tax-exempt municipal) were 36% and U. S. government and government agency bonds were 11%. At June 30, 2007, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 24%, mid-cap – 26%, small-cap – 25% and international – 25%.

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, 2007 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, 2007 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, 2007 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	$	—	$	—	$	4,105,568	$	95,177	$	4,105,568	$	95,177
States and political subdivisions		5,254,468		104,409		3,893,858		102,163		9,148,326		206,572
Corporate securities		—		—		8,612,150		241,477		8,612,150		241,477
Mortgage-backed securities		3,072,780		36,524		9,555,082		301,666		12,627,862		338,190

		8,327,248		140,933		26,166,658		740,483		34,493,906		881,416

Common stocks and mutual funds		—		—		—		—		—		—

Total	$	8,327,248	$	140,933	$	26,166,658	$	740,483	$	34,493,906	$	881,416

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 six months ended June 30, 2007.

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 12 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 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.


	Portfolio Value		Change in Value
Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	38,479	$	(4,069	)
1%		40,525		(2,023	)
0		42,548		—
-1%		44,546		1,998
-2%		46,521		3,973

Credit Risk. At June 30, 2007, all of our fixed maturity securities were rated by Moody’s as investment grade with an average credit quality rating of AA+ and an effective duration of 4.34 years.

While sub-prime mortgage headlines continue to be a top story in the news, it is important to stress that these loans make up less than 15% of the mortgage-backed market. Sub-prime loans are made to borrowers with extremely low credit scores (FICO <620) and high loan-to-value ratios. These loans typically have rates well above “prime” rates (+200-300 basis points over current conventional mortgage loans). Compounding the problem, many sub-prime loans originated off of floating rate indices and are being reset at levels significantly higher than their original rates.

Given the Company’s propensity for high credit quality, our portfolio does not hold any investments in this lower-tier sub-set of the mortgage-backed market. Instead, we hold higher-quality pools that are well-diversified, avoiding any regional concentrations. As added protection, the majority of the securities held within the portfolio are agency-backed issues.

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 is a result of our holdings of 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 litigation to be material. However, given the uncertainties attendant to litigation, we cannot be sure that our results of operations and financial condition will not be materially adversely affected by any litigation.

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, 2006.

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, 2007, the Insurance Company can pay a non-extraordinary dividend of up to $3,367,000 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 10, 2007, the following proposals were adopted by the margins indicated.


			Number of Shares
			Voted For	Withheld
Proposal 1:	Election of four Class I directors for a term of three years and until their successors have been elected and qualified.
	Michael A. DeKuiper		1,591,621	11,112
	Moncia C. Holmes		1,592,731	10,002
	Kenneth J. Schuiteman		1,593,331	9,402
	Jack A. Siebers		1,588,822	13,911

		Number of Shares
		Voted For	Against	Abstain
Proposal 2:	Ratification of the appointment of BDO Seidman, LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2007.	1,595,103	5,480	2,150
Proposal 3:	Approval of the amendments to Fremont Michigan InsuraCorp, Inc.’s Articles of Incorporation regarding matters to be considered by the Board of Directors in evaluation of certain offers.	816,082	158,903	4,117

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 (a)		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).

3.1 (b)		Certificate of Amendment to the Articles of Incorporation of Fremont Michigan InsuraCorp, Inc.

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 of Finance under Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification pursuant to 18 U.S.C. Section 1350.

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 13, 2007	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer

Date: August 13, 2007	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance
		(principal financial and accounting officer)

Positive
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Litigous
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Fremont Michigan InsuraCorp (FMMH) Inactive 10-Q2007 Q2 Quarterly report

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