Fremont Michigan InsuraCorp (FMMH) 10-Q 2008 Q3 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 September 30, 2008

OR

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

For the transition period from              to             

No. 000-50926

(Commission File Number)

FREMONT MICHIGAN INSURACORP, INC.

(Exact name of Registrant as specified in its charter)

Michigan	42-1609947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
933 E. Main St., 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, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨	Accelerated filer  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)	Smaller reporting company  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 November 7, 2008
COMMON STOCK (No Par Value)	1,750,154
(Title of Class)	(Outstanding Shares)

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statement of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Other Information	31
Item 6.	Exhibits	31
SIGNATURES		32

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

September 30, 2008 and December 31, 2007

	September 30, 2008			December 31, 2007
Assets
Investments:
Fixed maturities available for sale, at fair value	$	52,866,633		$	50,528,874
Equity securities available for sale, at fair value		6,245,502			8,305,133
Mortgage loans on real estate from related parties		248,212			253,656
Total investments		59,360,347			59,087,663
Cash and cash equivalents		5,764,437			4,033,158
Premiums due from policyholders, net		8,766,527			7,852,730
Amounts due from reinsurers		6,034,673			6,588,847
Prepaid reinsurance premiums		409,335			258,875
Accrued investment income		612,877			533,843
Deferred policy acquisition costs		3,551,265			3,334,001
Deferred federal income taxes		4,461,070			2,920,648
Property and equipment, net of accumulated depreciation		2,500,906			2,500,988
Other assets		5,376			43,905
	$	91,466,813		$	87,154,658
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	18,193,233		$	18,058,919
Unearned premiums		24,973,398			22,727,515
Reinsurance balances payable		48,665			199,463
Accrued expenses and other liabilities		8,367,598			6,742,803
Total liabilities		51,582,894			47,728,700
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, 1,761,154 and 1,779,321 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		—			—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—			—
Additional paid-in capital		8,728,816			7,722,424
Retained earnings		32,580,726			30,395,771
Accumulated other comprehensive (loss) income		(1,425,623	)		1,307,763
Total stockholders’ equity		39,883,919			39,425,958
Total liabilities and stockholders’ equity	$	91,466,813		$	87,154,658

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

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2008			2007		2008			2007
Revenues:
Net premiums earned	$	12,066,502		$	10,874,446	$	35,061,830		$	31,739,937
Net investment income		563,572			527,002		1,614,847			1,536,762
Net realized gains (losses) on investments		(351,782	)		1,124,059		(193,180	)		1,446,031
Other income, net		152,401			122,449		439,229			338,153
Total revenues		12,430,693			12,647,956		36,922,726			35,060,883
Expenses:
Losses and loss adjustment expenses, net		6,559,562			7,768,458		19,806,639			19,685,075
Policy acquisition and other underwriting expenses		3,941,913			4,058,431		12,018,546			11,661,017
Interest expense		—			45,010		—			146,170
Total expenses		10,501,475			11,871,899		31,825,185			31,492,262
Income before federal income tax expense		1,929,218			776,057		5,097,541			3,568,621
Federal income tax expense		627,352			206,567		1,574,235			1,084,076
Net income	$	1,301,866		$	569,490	$	3,523,306		$	2,484,545
Earnings per share
Basic	$	.74		$	.32	$	1.98		$	1.40
Diluted	$	.72		$	.31	$	1.94		$	1.37

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

4

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2008

	Common Stock Class A (Number of Shares)		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2007	1,779,321		$	7,722,424		$	30,395,771		$	1,307,763		$	39,425,958
Comprehensive income:
Net income							3,523,306						3,523,306
Net unrealized losses on investments, net of tax										(2,697,039	)		(2,697,039	)
Amortization of prior service credit, net of tax										(42,412	)		(42,412	)
Amortization of net actuarial loss, net of tax										6,065			6,065
Total comprehensive income													789,920
Issued 51,918 shares in payment of 3% stock dividend				1,008,117			(1,008,117	)					—
Share Repurchases of Common Stock	(20,000	)		(95,800	)		(277,100	)					(372,900	)
Cash Dividend							(53,134	)					(53,134	)
Stock-based compensation				78,011									78,011
Stock options exercised	1,833			9,383									9,383
Tax benefit from stock options exercised				6,681									6,681
Balance, September 30, 2008	1,761,154		$	8,728,816		$	32,580,726		$	(1,425,623	)	$	39,883,919

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2008 and 2007

	2008			2007
Cash flows from operating activities:
Net income	$	3,523,306		$	2,484,545
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		876,247			756,748
Deferred federal income taxes		(132,313	)		(20,761	)
Stock based compensation expense		78,011			73,557
Net realized (gains) losses on investments		193,180			(1,443,197	)
Gain on sale of property and equipment		—			(2,834	)
Net amortization of premiums on investments		167,362			146,090
Excess tax benefit from stock options exercised		(6,681	)		(11,556	)
Changes in assets and liabilities:
Premiums due from policyholders		(913,797	)		(658,217	)
Amounts due from reinsurers		554,174			(281,637	)
Prepaid reinsurance premiums		(150,460	)		(1,215,959	)
Accrued investment income		(79,034	)		(71,079	)
Deferred policy acquisition costs		(217,264	)		(121,307	)
Other assets		38,529			22,553
Losses and loss adjustment expenses		134,314			1,838,615
Unearned premiums		2,245,883			1,331,851
Reinsurance balances payable		(150,798	)		(2,253	)
Accrued expenses and other liabilities		1,576,404			240,189
Net cash provided by operating activities		7,737,063			3,065,348
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		9,786,923			14,305,490
Proceeds from sales of equity investments		535,853			6,459,229
Purchases of fixed maturity investments		(14,500,352	)		(16,034,218	)
Purchases of equity investments		(547,517	)		(1,702,501	)
Repayment of mortgage loan on real estate from related party		5,444			5,318
Proceeds from sale of property and equipment		—			3,601
Purchase of property and equipment, net		(876,165	)		(979,441	)
Net cash (used in) provided by investing activities		(5,595,814	)		2,057,478
Cash flows from financing activities:
Proceeds from exercised stock options		9,383			10,000
Tax benefit from exercised stock options		6,681			11,556
Share repurchase of common stock		(372,900	)		—
Repayment of surplus notes		—			(2,890,288	)
Dividends paid to stockholders		(53,134	)		—
Net cash used in financing activities		(409,970	)		(2,868,732	)
Net increase in cash and cash equivalents		1,731,279			2,254,094
Cash and cash equivalents, beginning of period		4,033,158			4,598,843
Cash and cash equivalents, end of period	$	5,764,437		$	6,852,937

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

6

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

Fremont Michigan InsuraCorp, Inc. and subsidiary (collectively, the “Company”) includes Fremont Michigan InsuraCorp, Inc. (“FMIC”) and its wholly owned subsidiary Fremont Insurance Company (“FIC”). FIC is a Michigan licensed property and casualty insurance 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, 2007.

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.

2. Stock Splits and Dividends

The fair value of shares issued for stock dividends of 25% or less is transferred from retained earnings to additional paid-in capital, to the extent of available retained earnings. No transfer is recorded for stock dividends or splits in excess of 25%. All share and per share amounts are retroactively adjusted for stock dividends and stock splits.

3. New Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS 141(R)). The Standard will significantly change the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the beginning of an entity’s first year that begins after December 15, 2008. The Company does not expect the implementation of SFAS 141(R) to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements.

In February 2007, the FASB issued FSP No. FAS 158-1, “Conforming Amendments to the Illustrations in FASB Statements No. 87, No. 88 and No. 106 and to the Related Staff Implementation Guides.” This FSP provides conforming amendments to the illustrations in SFAS 87, 88, and 106 and to related staff implementation guides as a result of the issuance of SFAS 158. The conforming amendments made by this FSP are effective as of the effective dates of SFAS 158. The unaffected guidance that this FSP codifies into SFAS 87, 88, and 106 does not contain new requirements and therefore does not require a separate effective date or transition method. The implementation of FSP No. FAS 158-1 did not have a material impact on the Company’s consolidated financial statements.

7

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

In December 2007, the SEC issued Staff Accounting Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of Share Options” (SAB 110). SAB 110 expresses the current view of the staff that it will accept a company’s election to use the simplified method discussed in SAB 107 for estimating the expected term of “plain vanilla” share options regardless of whether the company has sufficient information to make more refined estimates. The staff noted that it understands that detailed information about employee exercise patterns may not be widely available by December 31, 2007. Accordingly, the staff will continue to accept, under certain circumstances, the use of the simplified method beyond December 31, 2007. The implementation of SAB 110 did not have a material impact on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of SFAS No. 161 will not affect our consolidated financial condition and results of operations, but may require additional disclosures if we enter into derivative and hedging activities.

4. Fair Value Measurements

Our available-for-sale investment portfolio consists of fixed maturity and equity securities (mutual funds), and is recorded at fair value in the accompanying Consolidated Balance Sheets in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The change in the fair value of these investments is recorded as a component of other comprehensive income.

We adopted FASB Statement No. 159, “The Fair Value Option of Financial Assets and Financial Liabilities” (“SFAS No. 159”) effective January 1, 2008. Under this standard, we are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option in accordance with SFAS No. 159. We believe the current accounting is appropriate for our investments as we have the ability to hold our investments for the long-term, therefore, SFAS No. 159 did not have any impact on our consolidated financial condition or results of operations.

We also adopted FASB Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”) effective January 1, 2008. SFAS No. 157 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date, and establishes a framework to make the measurement of fair value more consistent and comparable. In determining fair value, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets (“market approach”). We have determined that our fair value measurements are in accordance with the requirements of SFAS No. 157, therefore, the implementation of SFAS No. 157 did not have any impact on our consolidated financial condition or results of operations. The implementation of SFAS No. 157 resulted in expanded disclosures about securities measured at fair value, as discussed below.

SFAS No. 157 established a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the reporting entity (“observable inputs”) and the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (“unobservable inputs”). The hierarchy level assigned to each security in our available-for-sale portfolio is based on our assessment of the transparency and reliability of the inputs used in the valuation of such instrument at the measurement date. The three hierarchy levels are defined as follows:

Level 1

Valuations based on unadjusted quoted market prices in active markets for identical securities. The fair value of fixed maturity and equity securities (mutual funds) included in the Level 1 category were based on quoted prices that are readily and regularly available in an active market. The Level 1 category includes publicly traded equity securities (mutual funds) and U.S. Government Treasury and Agency securities.

Level 2

Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

of fixed maturity securities in the Level 2 category were based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information. The independent pricing service also monitors market indicators, industry and economic events. For broker-quoted only securities, quotes are obtained from market makers or broker-dealers that it recognizes to be market participants. The Level 2 category includes corporate bonds, municipal bonds, and mortgage-backed securities.

Level 3

Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Company did not hold any available-for-sale investments on the measurement date that are classified in the Level 3 category.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement

The following table presents our available-for-sale investments measured at fair value on a recurring basis as of September 30, 2008 classified by the SFAS No. 157 valuation hierarchy (as discussed above):

			Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
Available-for-Sale Investments:
Fixed Maturity Securities	$	52,866,633	$	1,633,116	$	51,233,517	$	—
Equity Securities-Mutual Funds		6,245,502		6,245,502		—		—
Total	$	59,112,135	$	7,878,618	$	51,233,517	$	—

5. Comprehensive Income or Loss

The Company’s comprehensive income (loss) for the three and nine months ended September 30 is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Net income	$	1,301,866		$	569,490		$	3,523,306		$	2,484,545
Other comprehensive income, net of tax:
Unrealized gain (loss) on investments		(1,745,660	)		501,685			(2,824,538	)		975,063
Reclassification adjustment for realized (gain) loss on investments included in net income		232,176			(741,878	)		127,499			(954,380	)
Amortization of prior service credit		(14,137	)		(14,138	)		(42,412	)		(42,413	)
Amortization of net actuarial loss		2,022			3,348			6,065			10,045
Other comprehensive income (loss), net of tax		(1,525,599	)		(250,983	)		(2,733,386	)		(11,685	)
Comprehensive income	$	(223,733	)	$	318,507		$	789,920		$	2,472,860

6. 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. On May 8, 2008, the Board of Directors declared a 3% stock dividend, to be paid June 5, 2008, to stockholders of record on May 22, 2008. All data with respect to net income per share and weighted average shares outstanding have been adjusted to reflect the stock dividend. The computation of basic and diluted net income per share for the three and nine months ended September 30 is as follows:

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2008		2007		2008		2007
Numerator for basic and diluted earnings per share:
Net income	$	1,301,866	$	569,490	$	3,523,306	$	2,484,545
Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,771,044		1,779,280		1,777,364		1,778,992
Effect of dilutive stock options		37,280		40,062		36,840		41,819
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,808,324		1,819,342		1,814,204		1,820,811
Basic earnings per share	$	0.74	$	0.32	$	1.98	$	1.40
Diluted earnings per share	$	0.72	$	0.31	$	1.94	$	1.37

7. Segment Information

The Company defines its operations as property and casualty insurance operations. The Company writes four major insurance lines exclusively in the State of Michigan: Personal Lines, Commercial Lines, Farm and Marine. The separate financial information of these four major insurance lines is consistent with the way results are regularly evaluated by management in deciding how to allocate resources and in assessing performance. All revenues are generated from external customers and the Company does not have a significant reliance on any single major customer.

The Company evaluates product line profitability based on underwriting gain (loss). Certain expenses are allocated based on net premiums earned and net losses incurred. Underwriting gain (loss) by product line would change if different methods were applied.

The Company does not allocate assets, net investment income, net realized gains 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.

10

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

Segment data for the three and nine months ended September 30 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Revenues:
Net premiums earned:
Personal lines	$	8,550,971		$	7,417,850		$	24,608,710		$	21,642,198
Commercial lines		1,930,295			1,936,517			5,712,222			5,596,570
Farm		1,129,256			1,081,548			3,397,706			3,257,431
Marine		455,980			438,531			1,343,192			1,243,738
Total net premiums earned		12,066,502			10,874,446			35,061,830			31,739,937
Expenses:
Loss and loss adjustment expenses:
Personal lines		4,964,837			6,315,228			15,387,817			14,758,573
Commercial lines		610,077			712,555			2,120,413			2,731,477
Farm		421,664			460,589			1,537,684			1,674,146
Marine		562,984			280,086			760,725			520,879
Total loss and loss adjustment expenses		6,559,562			7,768,458			19,806,639			19,685,075
Policy acquisition and other underwriting expenses:
Personal lines		2,795,462			2,768,375			8,435,410			7,951,183
Commercial lines		629,720			722,555			1,958,044			2,056,138
Farm		367,925			403,948			1,164,671			1,196,756
Marine		148,806			163,553			460,421			456,940
Total policy acquisition and other underwriting expenses		3,941,913			4,058,431			12,018,546			11,661,017
Underwriting gain (loss):
Personal lines		790,672			(1,665,753	)		785,483			(1,067,558	)
Commercial lines		690,498			501,407			1,633,765			808,955
Farm		339,667			217,011			695,351			386,529
Marine		(255,810	)		(5,108	)		122,046			265,919
Total underwriting gain (loss)		1,565,027			(952,443	)		3,236,645			393,845
Net investment income		563,572			527,002			1,614,847			1,536,762
Net realized gains (losses) on investments		(351,782	)		1,124,059			(193,180	)		1,446,031
Other income, net		152,401			122,449			439,229			338,153
Interest expense		—			(45,010	)		—			(146,170	)
Income before federal income taxes	$	1,929,218		$	776,057		$	5,097,541		$	3,568,621

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

8. 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 nine months ended September 30 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Components of net periodic benefit cost:
Service cost	$	2,844		$	2,895		$	8,532		$	8,684
Interest cost		25,276			26,230			75,827			78,692
Amortization of unrecognized prior service cost		(21,421	)		(21,421	)		(64,263	)		(64,262	)
Amortization of unrecognized net actuarial loss		3,063			5,073			9,189			15,220
Net periodic benefit cost	$	9,762		$	12,777		$	29,285		$	38,334

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the nine months ended September 30, 2008 the Company has made contributions to the plan of approximately $84,000. The total 2008 expected contribution is approximately $90,000 to cover anticipated benefit payments.

9. Reinsurance

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

	Three Months Ended
	September 30, 2008						September 30, 2007
	Written			Earned			Written			Earned
Direct	$	16,620,491		$	14,729,825		$	14,892,593		$	13,374,527
Assumed		16,760			19,820			16,001			16,782
Ceded		(2,716,393	)		(2,683,143	)		(2,509,107	)		(2,516,863	)
Net premiums	$	13,920,858		$	12,066,502		$	12,399,487		$	10,874,446
	Nine Months Ended
	September 30, 2008						September 30, 2007
	Written			Earned			Written			Earned
Direct	$	45,132,718		$	42,889,383		$	40,391,546		$	39,061,376
Assumed		64,238			61,691			58,156			56,475
Ceded		(8,039,704	)		(7,889,244	)		(7,398,674	)		(7,377,914	)
Net premiums	$	37,157,252		$	35,061,830		$	33,051,028		$	31,739,937

The effect of reinsurance on incurred losses was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Loss and LAE incurred		7,386,345		$	8,638,736			21,664,698		$	21,926,907
Reinsurance recoveries		(826,783	)		(870,278	)		(1,858,059	)		(2,241,832	)
Net loss and LAE incurred	$	6,559,562		$	7,768,458		$	19,806,639		$	19,685,075

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Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

10. Federal Income Taxes

The provision for income taxes for the three and nine months ended September 30 consists of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Current expense	$	764,245		$	235,760		$	1,706,548		$	1,104,836
Deferred benefit		(136,893	)		(29,193	)		(132,313	)		(20,760	)
Total	$	627,352		$	206,567		$	1,574,235		$	1,084,076

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 September 30,										Nine Months Ended September 30,
	2008					2007					2008					2007
Income before federal income taxes	$	1,929,218				$	776,057				$	5,097,541				$	3,568,621
Tax at statutory rate		655,934		34.0	%		263,859		34.0	%		1,733,164		34.0	%		1,213,331		34.0	%
Tax effect of :
Nontaxable investment income		(77,890	)	(4.0	%)		(58,485	)	(7.5	%)		(234,059	)	(4.6	%)		(136,996	)	(3.8	%)
Nondeductible expenses, net		3,397		0.2	%		1,453		0.2	%		6,399		0.1	%		4,727		0.1	%
Provision to return variance		45,911		2.4	%		(260	)	—			68,731		1.4	%		3,014		0.1	%
Federal income tax expense	$	627,352		32.6	%	$	206,567		26.7	%	$	1,574,235		30.9	%	$	1,084,076		30.4	%

Deferred federal income tax assets and liabilities are recognized for the estimated future tax consequences attributable to the difference between financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. In determining the need for a valuation allowance, the Company’s management reviews both positive and negative evidence, including current and historical results of operations, the annual limitation on utilization of net operating loss carryforwards pursuant to Internal Revenue Code Section 382 (“Section 382”), future income projections and the overall prospects of our business. Based upon management’s assessment of all available evidence, including the Company’s cumulative net income for recent fiscal years, estimates of current and future profitability and the overall prospects of our business, it has been determined that as of September 30, 2008 it is more likely than not that sufficient taxable income will exist in the periods of reversal in order to realize the net deferred tax asset. Based on the annual Section 382 limitation of the utilization of net operating loss carryforwards management has determined that approximately $2,971,000 of net operating loss carryforwards will not be realized and therefore a valuation allowance of approximately $1,010,000 will be maintained for the deferred tax asset associated with these amounts.

13

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

At September 30, 2008 and December 31, 2007 the tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

	September 30, 2008			December 31, 2007
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	368,349		$	378,886
Unearned premium reserves		1,736,161			1,564,457
Postretirement benefits accrued		649,172			644,380
Unrealized losses on investments		1,129,035			—
Net operating loss carryforward		2,396,433			2,498,439
Alternative minimum tax credit carryforward		357,697			357,697
Other deferred tax assets		189,681			160,995
Total deferred federal income tax assets		6,826,528			5,604,854
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,253,066	)		(1,159,411	)
Unrealized gains on investments		—			(379,348	)
Property and equipment		(90,157	)		(94,719	)
Other deferred tax liabilities		(12,198	)		(40,691	)
Total deferred federal income tax liabilities		(1,355,421	)		(1,674,169	)
Net deferred federal income tax asset		5,471,107			3,930,685
Valuation allowance		(1,010,037	)		(1,010,037	)
Net deferred tax asset	$	4,461,070		$	2,920,648

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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, 2007, 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 175 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 September 30, 2008, we had approximately 64,500 policies in force and assets of $91.5 million.

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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 nine months ended September 30, 2008 and 2007. 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 2007 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 September 30, 2008.

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We have four business segments: personal, commercial, farm and marine. The following table shows the breakdown of our loss and LAE reserves between reported losses and IBNR losses by segment as of September 30, 2008 and December 31, 2007 (in thousands):

	September 30, 2008		December 31, 2007
Reported losses
Personal	$	6,671	$	6,211
Commercial		2,267		2,690
Farm		555		656
Marine		353		883
		9,846		10,440
IBNR losses
Personal		4,236		3,830
Commercial		3,401		3,121
Farm		371		329
Marine		339		339
		8,347		7,619
Total
Personal		10,907		10,041
Commercial		5,668		5,811
Farm		926		985
Marine		692		1,222
	$	18,193	$	18,059

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 September 30, 2008 and December 31, 2007, was approximately $195,000 and $344,000, 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 and any corresponding deferred tax asset valuation allowance, 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 on at least a quarterly basis during the year, and any provisions for other-than-temporary impairments in the portfolio’s value are evaluated and established at each quarterly balance sheet date. In reviewing its fixed maturity securities for other than temporary impairment, the Company takes into consideration the security’s market price history, the length of time that the security’s fair value has been below cost, 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, to reach its conclusions. In reviewing equity securities, which currently consists of mutual funds, the Company takes into consideration the mutual fund’s market price history, the length of time that the fund’s fair value has been below cost, the individual investments held within the mutual fund, most current audit opinion, industry and securities market conditions, and analyst expectations to reach its conclusions.

In addition to analyzing each individual security that has a fair value below cost, the Company also considers its intent and ability to hold a security until its maturity, in the case of a fixed maturity security, or until its fair value is equal to or greater than its cost. The Company does not have the intent to sell securities at a realized loss. The investment strategy of the Company is not one of actively trading securities to generate short-term gains or losses. Instead, the Company focuses on acquiring and holding high quality, high yield fixed maturity securities and equity securities which are expected to appreciate over time. The Company also has the ability to hold investment securities until their fair value has increased to above cost. Factors which support the Company’s ability to hold impaired securities until their recovery include current cash and cash equivalents, sufficient historical and projected cash flow from operations and cash from maturities of fixed maturity securities.

17

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 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 Regulation.

At September 30, 2008 and December 31, 2007, the Company’s recoverable from reinsurers was comprised of the following:

	September 30,		December 31,
	2008		2007
Paid losses and LAE	$	527,068	$	988,324
Unpaid losses and LAE		5,507,605		5,600,523
Amounts due from reinsurers	$	6,034,673	$	6,588,847

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.

18

Results of Operations – Three Months Ended September 30, 2008 and 2007

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 September 30, 2008 and 2007. 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
	2008			2007			Dollar			Percentage
Underwriting gain (loss)
Personal		790,672		$	(1,665,753	)	$	2,456,425		(147.5	%)
Commercial		690,498			501,407			189,091		37.7	%
Farm		339,667			217,011			122,656		56.5	%
Marine		(255,810	)		(5,108	)		(250,702	)	4908.0	%
Total underwriting gain (loss)		1,565,027			(952,443	)		2,517,470		(264.3	%)
Other revenue (expense) items
Net investment income		563,572			527,002			36,570		6.9	%
Net realized gains (losses) on investments		(351,782	)		1,124,059			(1,475,841	)	(131.3	%)
Other income		152,401			122,449			29,952		24.5	%
Interest expense		—			(45,010	)		45,010		(100.0	%)
Total other revenue (expense) items		364,191			1,728,500			(1,364,309	)	(78.9	%)
Income before federal income taxes		1,929,218			776,057			1,153,161		148.6	%
Federal income tax expense		(627,352	)		(206,567	)		(420,785	)	203.7	%
Net income	$	1,301,866		$	569,490		$	732,376		128.6	%

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended September 30, 2008 and 2007.

	2008			2007			Change			% Change
Direct premiums written	$	16,620,491		$	14,892,593		$	1,727,898		11.6	%
Net premiums written	$	13,920,858		$	12,399,487		$	1,521,371		12.3	%
Net premiums earned	$	12,066,502		$	10,874,446		$	1,192,056		11.0	%
Loss and LAE		6,559,562			7,768,458			(1,208,896	)	(15.6	%)
Policy acquisition and other underwriting expenses		3,941,913			4,058,431			(116,518	)	(2.9	%)
Underwriting gain (loss)	$	1,565,027		$	(952,443	)	$	2,517,470		(264.3	%)
Loss and LAE ratio		54.4	%		71.4	%		(17.0	%)
Policy acquisition and other underwriting expense ratio		32.7	%		37.3	%		(4.6	%)
Combined ratio		87.1	%		108.7	%		(21.6	%)

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.

19

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

	2008		2007		$ Change		% Change
Direct Premiums Written:
Personal	$	12,237,845	$	10,739,136	$	1,498,709	14.0	%
Commercial		2,366,143		2,256,858		109,285	4.8	%
Farm		1,441,309		1,343,949		97,360	7.2	%
Marine		575,194		552,650		22,544	4.1	%
	$	16,620,491	$	14,892,593	$	1,727,898	11.6	%

We continue to generate strong growth in direct premiums written which were up 11.6% in the third quarter 2008 compared to the same quarter in 2007. We continue to capitalize on the relationships we have built with our independent agents. During the current soft market, independent agents are placing more emphasis on placing business with carriers that can provide an efficient process for quoting and issuing policies. Our investment in Fremont Complete has paid significant dividends which is evident by the growth we’ve experienced in direct premiums written. The Company’s goal is to be the carrier of choice in every one of our independent agencies. The Company is achieving its goal by providing our agents with the path of least resistance in terms of quoting and placing target market business with Fremont.

Direct premiums written for the personal segment increased 14.0%, driven by personal auto, up 22.8%, and homeowners, up 7.9%. The personal segment’s new business increased 11.6% while renewal business was up 14.3%. Personal auto and homeowner’s new business premium increased 11.9% and 12.9%, respectively, while renewal premium grew 24.8% and 7.1%, respectively. During the third quarter 2008, the in-force policy count for personal auto and homeowners increased 5.7% and 1.9%, respectively.

The commercial segment experienced an increase of 4.8% in direct premiums written driven by growth in the commercial auto and workers compensation product lines which were up 14.9% and 56%, respectively. Growth in these two lines was offset by a decline in premium in the businessowners and commercial package product lines which were down 10.8% and 10.6%, respectively, during the quarter. The increase in workers compensation premium was driven by a $208,000 new policy written during the third quarter 2008. It is important to note that the growth experienced in commercial auto and workers compensation is supported business. Supported business means that the Company is also writing a businessowners policy or a commercial package policy which accompanies the commercial auto and workers compensation policies. During the third quarter 2008 the in-force policy count for the commercial segment increased 0.7%. Growth in the workers compensation and commercial auto product lines was positively impacted by their roll-out on Fremont Complete which occurred during the second quarter 2008. With the addition of these two product lines to our web-based rating platform, agents are now able to quote and issue a complete business package including businessowners, workers compensation and commercial auto coverages. In the current soft rate environment, the Company continues to review all commercial renewals to ensure that we are retaining policies that are appropriately priced for the risk assumed.

Farm direct premiums written were up 7.2% during the current quarter driven by new business growth of 29.2% and an increase in renewal business of 5.7%. Direct premiums written for the marine segment increased 4.1%, driven by renewal premium growth of 11.9%. New business premium decreased 19.8% driven by a decrease in consumer boating activity in Michigan given the economic environment.

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

	2008		2007		$ Change		% Change
Net Premiums Written:
Personal	$	10,247,208	$	8,840,604	$	1,406,604	15.9	%
Commercial		1,887,130		1,882,879		4,251	0.2	%
Farm		1,276,125		1,182,472		93,653	7.9	%
Marine		510,395		493,532		16,863	3.4	%
	$	13,920,858	$	12,399,487	$	1,521,371	12.3	%

The increase in net premiums written is due to growth in direct premiums written of $1,728,000 offset by an increase of $207,000 in ceded premiums written under the Company’s reinsurance agreements.

20

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

	2008		2007		$ Change			% Change
Net Premiums Earned:
Personal	$	8,550,971	$	7,417,850	$	1,133,121		15.3	%
Commercial		1,930,295		1,936,517		(6,222	)	(0.3	%)
Farm		1,129,256		1,081,548		47,708		4.4	%
Marine		455,980		438,531		17,449		4.0	%
	$	12,066,502	$	10,874,446	$	1,192,056		11.0	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $1,355,000 offset by an increase of $163,000 in ceded premiums earned under the Company’s reinsurance agreements.

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

	2008			2007			$ Change			% Change
Loss and LAE:
Personal	$	4,964,837		$	6,315,228		$	(1,350,391	)	(21.4	%)
Commercial		610,077			712,555			(102,478	)	(14.4	%)
Farm		421,664			460,589			(38,925	)	(8.5	%)
Marine		562,984			280,086			282,898		101.0	%
	$	6,559,562		$	7,768,458		$	(1,208,896	)	(15.6	%)
Incurred Claim Count:
Personal		2,206			2,084			122		5.9	%
Commercial		208			207			1		0.5	%
Farm		151			149			2		1.3	%
Marine		126			103			23		22.3	%
		2,691			2,543			148		5.8	%
Average Loss and LAE per Claim:
Personal	$	2,251		$	3,030		$	(780	)	(25.7	%)
Commercial		2,933			3,442			(509	)	(14.8	%)
Farm		2,792			3,091			(299	)	(9.7	%)
Marine		4,468			2,719			1,749		64.3	%
	$	2,438		$	3,055		$	(617	)	(20.2	%)
Loss and LAE Ratio:
Personal		58.1	%		85.1	%
Commercial		31.6	%		36.8	%
Farm		37.3	%		42.6	%
Marine		123.5	%		63.9	%
		54.4	%		71.4	%

The decrease in the personal segment’s loss and LAE is driven by a decline of $1,552,000 in the homeowner and mobilowner product lines offset by an increase of $214,000 in the personal auto product line. The Company did not experience as much severe weather during the 2008 quarter compared to the 2007 quarter which accounts for the lower losses in the homeowner and mobilowner lines. The increase in loss and LAE from personal auto is primarily volume related as that line continues to grow. Loss and LAE for personal auto was up 8.5% during the quarter while direct premiums written increased by 22.8% during the quarter. The decrease in the commercial and farm segments’ loss and LAE was due to lower loss severity during the 2008 quarter as a result of fewer fire related losses. The increase in the marine segments loss and LAE is due to both increased severity and frequency primarily from boating related accidents.

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

	2008			2007			Change			% Change
Amortization of deferred policy acquisition costs	$	1,965,353		$	1,830,693		$	134,660		7.4	%
Other underwriting expenses		1,976,560			2,227,738			(251,178	)	(11.3	%)
Total policy acquisition and other underwriting expenses	$	3,941,913		$	4,058,431		$	(116,518	)	(2.9	%)
Net premiums earned	$	12,066,502		$	10,874,446		$	1,192,056		11.0	%
Expense ratio		32.7	%		37.3	%		(4.6	%)

Amortization of deferred policy acquisition costs (“DAC”) increased during the third quarter of 2008 as compared to the same period in 2007 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization decreased from 16.8% to 16.3% as a result of the increased volume of personal automobile premium which pays a lower commission than other products as well as increased ceding commission. The decrease in other underwriting expenses is due to lower assessments from state mandated pools and associations ($217,000), decreased advertising expense ($26,000) and lower costs associated with agent meetings ($15,000).

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 September 30 are as follows:

	2008			2007			Change			% Change
Fixed maturities	$	604,487		$	477,490		$	126,997		26.6	%
Equity securities		1,956			—			1,956		100.0	%
Cash and cash equivalents		37,002			131,181			(94,179	)	(71.8	%)
Gross investment income		643,445			608,671			34,774		5.7	%
Less: Investment expenses		(79,873	)		(81,669	)		(1,796	)	(2.2	%)
Net investment income	$	563,572		$	527,002		$	36,570		6.9	%
Average invested assets (amortized cost basis)	$	66,631,716		$	61,027,187		$	5,604,529		9.2	%
Rate of return on average invested assets		3.4	%		3.5	%		0.0	%

In the third quarter of 2008, pre-tax gross investment income from the fixed portfolio grew $127,000 or 26.6% compared to the same period in 2007. This increase was driven by higher invested assets in the fixed maturity portfolio. Investment income from cash and cash equivalents was higher during the third quarter of 2007 due to the fact that the Company held a higher level of cash equivalents in contemplation of paying off its surplus notes which took place in September 2007. Investment expenses decreased slightly as a result of lower advisory fees due to lower market values in both the fixed and equity portfolios.

The table below summarizes the net realized gains generated during the three month period ended September 30:

	2008			2007			Change			% Change
Net realized gains (losses) - fixed maturities	$	(351,782	)	$	(22,284	)	$	(329,498	)	1478.6	%
Net realized gains (losses) - equity securities		—			1,146,343			(1,146,343	)	(100.0	%)
Total net realized gains (losses)	$	(351,782	)	$	1,124,059		$	(1,475,841	)	(131.3	%)

During the third quarter, net realized losses from the fixed portfolio were comprised of $1,800 in net realized losses on the sale of fixed maturity securities and a $350,000 write-down of a security determined to be other than temporarily impaired. There was no selling activity in the equity portfolio during the third quarter 2008 while in the 2007 quarter the Company generated net realized gains of $1,146,000. 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.

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Interest Expense. Interest expense was approximately $45,000 during the three months ended September 30, 2007. In September 2007 the Company repaid all outstanding surplus notes and therefore has not incurred any interest expense since that time.

Income Tax Expense. During the quarters ended September 30, 2008 and 2007 the Company recorded income tax expense of approximately $627,000 and $207,000, respectively. The increase is due to higher pre-tax income in the 2008 quarter compared to the prior year period coupled with higher tax-exempt interest income during the 2008 quarter compared to 2007. The effective tax rate for the quarter ended September 30, 2008 was 32.6% compared to 26.6% in the prior year quarter. The increase in the effective tax rate is due to higher underwriting income as a component of total pre-tax income in the 2008 quarter as compared to the 2007 quarter.

Results of Operations – Nine Months Ended September 30, 2008 and 2007

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 nine months ended September 30, 2008 and 2007. 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
	2008			2007			Dollar			Percentage
Underwriting gain (loss)
Personal	$	785,483		$	(1,067,558	)	$	1,853,041		173.6	%
Commercial		1,633,765			808,955			824,810		102.0	%
Farm		695,351			386,529			308,822		79.9	%
Marine		122,046			265,919			(143,873	)	(54.1	%)
Total underwriting gain		3,236,645			393,845			2,842,800		721.8	%
Other revenue (expense) items
Net investment income		1,614,847			1,536,762			78,085		5.1	%
Net realized gains (losses) on investments		(193,180	)		1,446,031			(1,639,211	)	(113.4	%)
Other income		439,229			338,153			101,076		29.9	%
Interest expense		—			(146,170	)		146,170		(100.0	%)
Total other revenue (expense) items		1,860,896			3,174,776			(1,313,880	)	(41.4	%)
Income before federal income taxes		5,097,541			3,568,621			1,528,920		42.8	%
Federal income tax expense		(1,574,235	)		(1,084,076	)		(490,159	)	45.2	%
Net income	$	3,523,306		$	2,484,545		$	1,038,761		41.8	%

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the nine months ended September 30, 2008 and 2007.

	2008			2007			Change			% Change
Direct premiums written	$	45,132,718		$	40,391,546		$	4,741,172		11.7	%
Net premiums written	$	37,157,252		$	33,051,028		$	4,106,224		12.4	%
Net premiums earned	$	35,061,830		$	31,739,937		$	3,321,893		10.5	%
Loss and LAE		19,806,639			19,685,075			121,564		0.6	%
Policy acquisition and other underwriting expenses		12,018,546			11,661,017			357,529		3.1	%
Underwriting gain	$	3,236,645		$	393,845		$	2,842,800		721.8	%
Loss and LAE ratio		56.5	%		62.0	%		(5.5	%)
Policy acquisition and other underwriting expense ratio		34.3	%		36.7	%		(2.4	%)
Combined ratio		90.8	%		98.7	%		(7.9	%)

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

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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 nine months ended September 30 are presented in the table below:

	2008		2007		Change		% Change
Direct Premiums Written:
Personal	$	32,034,404	$	28,067,317	$	3,967,087	14.1	%
Commercial		7,363,995		6,782,433		581,562	8.6	%
Farm		3,895,403		3,773,372		122,031	3.2	%
Marine		1,838,916		1,768,424		70,492	4.0	%
	$	45,132,718	$	40,391,546	$	4,741,172	11.7	%

For the first nine months of 2008 direct premiums written increased 11.7% over the prior year period led by growth in both personal and commercial lines. New business volume is up 10.3% while renewal business is up 12.6%. Since December 31, 2007 total in-force policy count has increased 7.3%. Growth for the first nine months of 2008 can be attributed to the strong partnerships we have cultivated with our agents along with our focused efforts to provide competitive products and pricing for target market business.

Direct premiums written for the personal segment increased 14.1%, driven by personal auto, up 22.0%, and homeowners, up 7.8%. The personal segment’s new business increased 5.8% while renewal business was up 15.8%. Personal auto new business premium increased 8.3% while homeowner’s new business was up 0.9%. Renewal premiums for personal auto and homeowners grew 24.7% and 9.0%, respectively. During the first nine months of 2008, the in-force policy count for personal auto and homeowners increased 18.9% and 4.9%, respectively.

The commercial segment experienced an increase of 8.6% in direct premiums written comprised of new business growth of 29.5% and growth in renewal business of 5.1%. During the nine months ended September 30, 2008 the in-force policy count for the commercial segment increased 6.2%. The increase in commercial premiums is being driven by growth in workers compensation, up 30.2%, and commercial auto, up 24.9%, which are the two newest product lines available on Fremont Complete. While the growth in workers compensation was positively affected during the nine months ended September 30, 2008 as a result of a $208,000 new policy, excluding this policy would have still generated an increase of 14.1% in workers compensation premiums for the period. It is important to note that the growth experienced in commercial auto and workers compensation is supported business. Supported business means that the Company is also writing a businessowners policy or a commercial package policy which accompanies the commercial auto and workers compensation policies. With the recent addition of workers compensation and commercial auto to our web-based rating platform, agents are now able quote and issue a complete business package including businessowners, workers compensation and commercial auto coverages.

Farm direct premiums written increased 3.2% driven by renewal business which was up 4.8% and new business growth of 2.5%. Direct premiums written for the marine segment increased 4.0% driven by renewal business which was up 6.8% offset by a decline in new business of 4.3%.

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

	2008		2007		Change		% Change
Net Premiums Written:
Personal	$	26,128,132	$	22,603,195	$	3,524,937	15.6	%
Commercial		5,982,776		5,624,319		358,457	6.4	%
Farm		3,398,395		3,269,361		129,034	3.9	%
Marine		1,647,949		1,554,153		93,796	6.0	%
	$	37,157,252	$	33,051,028	$	4,106,224	12.4	%

The increase in net premiums written is due to the overall increase in direct premiums written of $4,741,000 offset by an increase of $635,000 in ceded premiums written under the Company’s reinsurance agreements.

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

	2008		2007		Change		% Change
Net Premiums Earned:
Personal	$	24,608,710	$	21,642,198	$	2,966,512	13.7	%
Commercial		5,712,222		5,596,570		115,652	2.1	%
Farm		3,397,706		3,257,431		140,275	4.3	%
Marine		1,343,192		1,243,738		99,454	8.0	%
	$	35,061,830	$	31,739,937	$	3,321,893	10.5	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $3,828,000 offset by an increase of $506,000 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 nine months ended September 30 are shown in the tables below:

	2008			2007			Change			% Change
Loss and LAE:
Personal	$	15,387,817		$	14,758,573		$	629,244		4.3	%
Commercial		2,120,413			2,731,477			(611,064	)	(22.4	%)
Farm		1,537,684			1,674,146			(136,462	)	(8.2	%)
Marine		760,725			520,879			239,846		46.0	%
	$	19,806,639		$	19,685,075		$	121,564		0.6	%
Incurred Claim Count:
Personal		5,767			4,752			1,015		21.4	%
Commercial		462			420			42		10.0	%
Farm		349			262			87		33.2	%
Marine		191			165			26		15.8	%
		6,769			5,599			1,170		20.9	%
Average Loss and LAE per Claim:
Personal	$	2,668		$	3,106		$	(438	)	(14.1	%)
Commercial		4,590			6,504			(1,914	)	(29.4	%)
Farm		4,406			6,390			(1,984	)	(31.0	%)
Marine		3,983			3,157			826		26.2	%
	$	2,926		$	3,516		$	(590	)	(16.8	%)
Loss and LAE Ratio:
Personal		62.5	%		68.2	%
Commercial		37.1	%		48.8	%
Farm		45.3	%		51.4	%
Marine		56.6	%		41.9	%
		56.5	%		62.0	%

The increase in the personal segment’s loss and LAE is a combination of higher losses and LAE in the personal auto line offset by a decrease in the homeowner and mobilowner lines. Loss and LAE from personal auto increased $1,788,000 in 2008 compared to 2007, of which $1,510,000 or 84% was from auto physical damage claims with the balance coming from auto liability claims. Loss and LAE from the homeowner and mobilowner lines decreased $1,022,000 in 2008 compared to 2007 while the remaining personal product lines experienced a decrease of $137,000. The increase in personal auto losses is driven by a combination of both volume growth in the line, which is up 22.0% in direct premium written, coupled with an increase in both frequency and severity from physical damage claims. The decrease in the homeowner and mobilowner lines is primarily a result of a reduction in fire related loss frequency. Loss and LAE in both the commercial and farm segments decreased over the 2007 period due to a decline in loss severity as a result of fewer fire related losses. The increase in loss and LAE in the marine segment is due to an increase in both frequency and severity experienced in 2008 compared to 2007.

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

	2008			2007			Change			% Change
Amortization of deferred policy acquisition costs	$	5,781,551		$	5,463,897		$	317,654		5.8	%
Other underwriting expenses		6,236,995			6,197,120			39,875		0.6	%
Total policy acquisition and other underwriting expenses	$	12,018,546		$	11,661,017		$	357,529		3.1	%
Net premiums earned	$	35,061,830		$	31,739,937		$	3,321,893		10.5	%
Expense ratio		34.3	%		36.7	%		(2.4	%)

Amortization of deferred policy acquisition costs (“DAC”) increased during the 2008 period as compared to the same period in 2007 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization decreased from 17.2% to 16.5% as a result of the increased volume of personal automobile premium which pays a lower commission than other products as well as increased ceding commission. Other underwriting expenses were flat for the nine months ended September 30, 2008 compared to 2007. During the nine months ended September 30, 2007, the Company incurred approximately $173,000 related to assessments from state mandated pools and associations. Excluding these assessments from the 2007 other underwriting expense results in an increase of approximately $213,000 or 3.5% for the 2008 period compared to 2007. The increase is driven by both higher premium volume coupled with increased underwriting survey and inspection costs.

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 nine months ended September 30 are as follows:

	2008			2007			Change			% Change
Fixed maturities	$	1,751,128		$	1,518,076		$	233,052		15.4	%
Equity securities		9,935			20,089			(10,154	)	(50.5	%)
Cash and cash equivalents		104,742			234,819			(130,077	)	(55.4	%)
Gross investment income		1,865,805			1,772,984			92,821		5.2	%
Less: Investment expenses		(250,958	)		(236,222	)		14,736		6.2	%
Net investment income	$	1,614,847		$	1,536,762		$	78,085		5.1	%
Average invested assets (amortized cost basis)	$	65,050,285		$	60,572,630		$	4,477,655		7.4	%
Rate of return on average invested assets		3.3	%		3.4	%		(0.1	%)

For the nine months ended September 30, 2008, gross investment income from fixed maturities increased just over $233,000 or 15.4% over the same period in 2007. This increase was driven by growth in invested assets from 2007 to 2008. The tax-equivalent book yield ended the third quarter of 2008 at 5.14%, compared to 5.31% at the end of the third quarter of 2007. The decrease in investment income from equity securities is due to a decrease in distributions paid by the mutual funds held by the Company as compared to the prior year period. Investment income from cash and cash equivalents was higher during the 2007 period due to the fact that the Company held a higher level of cash equivalents in contemplation of paying off its surplus notes which took place in September 2007. Investment expenses are up as a result of an increase in general expenses associated with investment activities.

The table below summarizes the net realized gains (losses) generated during the nine months ended September 30, 2008 and 2007:

	2008			2007			Change			% Change
Net realized gains (losses) - fixed maturities	$	(285,399	)	$	(234,988	)	$	(50,411	)	21.5	%
Net realized gains (losses) - equity securities		92,219			1,681,019			(1,588,800	)	(94.5	%)
Total net realized gains (losses)	$	(193,180	)	$	1,446,031		$	(1,639,211	)	(113.4	%)

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During the nine months ended September 30, 2008, the Company generated net realized gains on the sale of fixed maturity securities of approximately $65,000 and a net realized loss of $350,000 as a result of a write-down of a fixed maturity security determined to be other than temporarily impaired. Selling activity in the equity portfolio has declined in 2008 as a result of the depressed market valuations whereas during the 2007 period the Company generated approximately $1,681,000 in equity realized gains as a result of rebalancing the equity portfolio and taking advantage of the unrealized market value appreciation.

Interest Expense. Interest expense was approximately $146,000 during the nine months ended September 30, 2007. In September 2007 the Company repaid all outstanding surplus notes and therefore has not incurred any interest expense since that time.

Income Tax Expense. During the nine months ended September 30, 2008 and 2007, the Company recorded income tax expense of approximately $1,574,000 and $1,084,000, respectively. The increase is due to higher pre-tax income in 2008 compared to the prior year period. The effective tax rate for the nine months ended September 30, 2008 was 30.9% compared to 30.4% in the prior year period.

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 shareholder dividends. 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 $7,737,000 and $3,065,000 for the nine months ended September 30, 2008 and 2007, respectively, an increase of $4,672,000. During the nine months ended September 30, 2008 as compared to the same period in 2007, net premiums collected increased $4,964,000, net loss and LAE payments increased $990,000, policy acquisition and other underwriting expenses paid increased $44,000 and federal income taxes paid decreased $185,000. Other cash provided by operations increased $557,000 during the nine months ended September 30, 2008 compared to the same period in 2007.

During the nine months ended September 30, 2008 cash flow used in investing activities was $5,596,000 while during the same period in 2007 cash flow provided by investing activities was $2,057,000. The shift in cash flow used in/provided by investing activities is due to a decline in selling activity within the investment portfolio in 2008 compared to 2007.

Cash used in financing activities was $410,000 and $2,869,000 for the nine months ended September 30, 2008 and 2007, respectively. During the nine months ended September 30, 2008, financing activities consisted of share repurchases of approximately $373,000, a cash dividend of $53,000 paid to stockholders and cash received of approximately $16,000 from the exercise of stock options. During the same period in 2007, financing activities consisted of the repayment of surplus notes of approximately $2,890,000 and cash received of approximately $22,000 from the exercise of stock options.

The Company paid a quarterly cash dividend of $.03 per common share on September 26, 2008 which totaled approximately $53,000. On October 20, 2008, the Board of Directors declared a quarterly cash dividend of $.03 per common share payable on December 30, 2008 to the shareholders of record on December 10, 2008. The Company estimates that the amount of this quarterly cash dividend will be approximately $53,000. The Board’s current intention is evaluate each quarter whether a cash dividend will be declared. The payment of future dividends will depend upon the availability of cash resources at the Holding Company, the financial condition and results of operations of the Company and such other factors as are deemed relevant by the Board of Directors.

During the quarter ended September 30, 2008, the Company began repurchasing shares of our common stock under a repurchase plan which was previously announced on May 8, 2008. A total of 20,000 shares were repurchased at a cost of approximately $373,000, or $18.65 per share. In October 2008, the Company repurchased an additional 11,000 shares at a total cost of $192,250, or $17.48 per share. See Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for details of our share repurchase program.

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

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The cost or amortized cost, gross unrealized gains, gross unrealized losses and estimated fair value of investments at September 30, 2008 and December 31, 2007 are as follows:

	September 30, 2008
	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	$	4,728,631	$	23,080	$	19,219	$	4,732,492
States and political subdivisions		29,310,402		51,016		1,098,983		28,262,435
Corporate securities		3,695,444		—		181,973		3,513,471
Mortgage-backed securities		16,759,422		69,870		471,057		16,358,235
		54,493,899		143,966		1,771,232		52,866,633
Equity securities - mutual funds		7,588,930		58,438		1,401,866		6,245,502
Total	$	62,082,829	$	202,404	$	3,173,098	$	59,112,135
	December 31, 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	$	3,172,509	$	27,498	$	1,826	$	3,198,181
States and political subdivisions		25,421,294		379,800		39,911		25,761,183
Corporate securities		6,928,699		5,531		100,328		6,833,902
Mortgage-backed securities		14,710,728		119,704		94,824		14,735,608
		50,233,230		532,533		236,889		50,528,874
Equity securities - mutual funds		7,485,046		1,023,631		203,544		8,305,133
Total	$	57,718,276	$	1,556,164	$	440,433	$	58,834,007

At September 30, 2008, corporate securities accounted for 7% of our fixed maturity portfolio, mortgage backed securities were 31%, states and political subdivisions (including both taxable and tax-exempt municipal) were 53% and U. S. government and government agency bonds were 9%. At September 30, 2008, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 27%, mid-cap – 25%, small-cap – 26%, specialty – 4%, and international – 18%.

At December 31, 2007, corporate securities accounted for 14% of our fixed maturity portfolio, mortgage backed securities were 29%, states and political subdivisions (including both taxable and tax-exempt municipals) were 51% and U. S. government and government agency bonds were 6%. At December 31, 2007, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 30%, mid-cap – 21%, small-cap – 25%, specialty – 4%, and international – 20%.

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 September 30, 2008 were generally determined to have temporary declines in value due to the current tightness in the credit markets and the related impact on the equity market, geopolitical reasons or a reaction to their particular industry rather than fundamental reasons. Fixed maturity securities with unrealized losses at September 30, 2008 were also determined to have temporary declines in value as opposed to fundamental changes in the credit quality of the issuers of the securities. We believe it is more likely than not that those securities will appreciate in value.

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The following table summarizes the length of time securities with unrealized losses at September 30, 2008 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	$	4,302,520	$	19,219	$	—	$	—	$	4,302,520	$	19,219
States and political subdivisions		20,852,828		795,968		2,654,965		303,015		23,507,793		1,098,983
Corporate securities		2,689,830		105,091		823,641		76,882		3,513,471		181,973
Mortgage-backed securities		9,029,055		413,886		1,966,498		57,171		10,995,553		471,057
		36,874,233		1,334,164		5,445,104		437,068		42,319,337		1,771,232
Equity securities - mutual funds		5,704,740		1,401,866		—		—		5,704,740		1,401,866
Total	$	42,578,973	$	2,736,030	$	5,445,104	$	437,068	$	48,024,077	$	3,173,098

As of September 30, 2008, the portfolio included seventy four fixed maturity securities and thirteen equity securities in an unrealized loss position for less than twelve months and sixteen fixed maturity securities in an unrealized loss position for more than twelve months. Of the fixed maturity securities, one was trading at 84% of amortized cost; twenty one were trading between 85% and 94% of amortized cost while the remaining sixty eight were trading at or above 95% of amortized cost. All the fixed maturity securities in an unrealized loss position and assigned a rating by commercial credit rating companies are rated investment grade securities. Of the thirteen equity securities in an unrealized loss position, one was trading at 58% of cost; three were trading between 60% and 79% of cost, six were trading between 80% and 89% of cost, while the remaining three were trading at or above 90% of cost. While all of these securities are monitored for potential impairment, the Company’s experience indicates that they generally do not present as great a risk of impairment, as fair value often recovers over time. These securities have generally been adversely affected by the downturn in the financial markets and overall economic conditions. Management believes that the analysis of each of these securities in addition to the fact that the Company has both the intent and ability to hold these securities until their recovery supports our view that these securities were not other-than-temporarily impaired.

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 nine months ended September 30, 2008 other than the declaration of a cash dividend. On July 22, 2008, the Company declared its first quarterly cash dividend of $.03 per share on its common stock which was paid on September 26, 2008 to the shareholders of record on September 10, 2008. The cash dividend amounted to $53,134. On October 20, 2008, the Company declared a cash dividend of $.03 per share on its common stock payable on December 30, 2008 to shareholders of record as of December 10, 2008. The Company expects this dividend to amount to approximately $53,000.

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.

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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.

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

Change in Rate	Portfolio Value		Change in Value
	(In thousands)
2%	$	47,363	$	(5,504	)
1%		50,138		(2,729	)
0		52,867		—
-1%		55,549		2,682
-2%		58,184		5,317

Credit Risk. At September 30, 2008, 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 4.94 years.

Given the Company’s propensity for high credit quality, our portfolio does not hold any investments in the sub-prime sector 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.

ITEM 4T. CONTROLS AND PROCEDURES.

There have not been any changes in our internal control over financial reporting, as defined by the Securities and Exchange Commission Rule 13a-15(f), as of the end of the quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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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, 2007.

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

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 he 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, 2008, the Insurance Company can pay a non-extraordinary dividend of up to $3,371,000 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. In August 2008, the Insurance Company declared and paid a $250,000 ordinary dividend to the Holding Company. In October 2008, the Insurance Company declared and paid a $300,000 ordinary dividend to the Holding Company.

The following table sets forth the repurchases of common stock for the quarter ended September 30, 2008:

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Maximum Number of Shares that May Yet Be Purchased Under the Plans
Month ended July 31, 2008	10,000	$	18.49	10,000	90,000
Month ended August 31, 2008	—	$	—	—	90,000
Month ended September 30, 2008	10,000	$	18.80	10,000	80,000
Total	20,000	$	18.65	20,000	80,000

(1) On May 8, 2008, the Company announced a share repurchase plan for up to 100,000 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

None

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
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.

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SIGNATURES

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

	FREMONT MICHIGAN INSURACORP, INC.
Date: November 13, 2008	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: November 13, 2008	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance
		(principal financial and accounting officer)

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