Fremont Michigan InsuraCorp (FMMH) 10-Q 2009 Q1 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 March 31, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

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 May 8, 2009
COMMON STOCK (No Par Value)	1,755,509
(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	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
SIGNATURES		27

2

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Balance Sheets (Unaudited)

March 31, 2009 and December 31, 2008

	March 31, 2009			December 31, 2008
Assets
Investments:
Fixed maturities available for sale, at fair value	$	49,049,685		$	53,958,783
Equity securities available for sale, at fair value		4,154,359			4,560,368
Mortgage loans on real estate from related parties		244,240			247,000
Total investments		53,448,284			58,766,151
Cash and cash equivalents		10,706,028			6,576,564
Premiums due from policyholders, net		9,080,923			8,888,334
Amounts due from reinsurers		8,028,405			6,844,407
Prepaid reinsurance premiums		504,027			465,006
Accrued investment income		523,684			594,776
Deferred policy acquisition costs		3,499,282			3,596,147
Deferred federal income taxes		4,859,618			4,741,726
Property and equipment, net of accumulated depreciation		2,487,461			2,455,766
Other assets		6,969			30,670
	$	93,144,681		$	92,959,547
Liabilities and Stockholders’ Equity
Liabilities:
Losses and loss adjustment expenses	$	22,229,849		$	21,369,524
Unearned premiums		24,395,856			25,455,624
Reinsurance balances payable		11,142			161,845
Accrued expenses and other liabilities		6,899,554			6,657,625
Total liabilities		53,536,401			53,644,618
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, 1,754,485 and 1,740,154 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively		—			—
Class B common stock, no par value, authorized 500,000 shares, no shares issued and outstanding		—			—
Additional paid-in capital		8,864,129			8,653,443
Retained earnings		32,731,007			32,507,143
Accumulated other comprehensive loss		(1,986,856	)		(1,845,657	)
Total stockholders’ equity		39,608,280			39,314,929
Total liabilities and stockholders’ equity	$	93,144,681		$	92,959,547

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

3

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Operations (Unaudited)

For the Three Months Ended March 31, 2009 and 2008

	2009		2008
Revenues:
Net premiums earned	$	12,820,881	$	11,216,905
Net investment income		501,185		516,236
Net realized gains on investments		196,661		158,602
Other income, net		144,166		138,141
Total revenues		13,662,893		12,029,884
Expenses:
Losses and loss adjustment expenses, net		9,221,193		6,336,499
Policy acquisition and other underwriting expenses		4,111,674		4,063,034
Total expenses		13,332,867		10,399,533
				��
Income before federal income tax expense		330,026		1,630,351
Federal income tax expense		51,918		525,897
Net income	$	278,108	$	1,104,454
Earnings per share
Basic	$	.16	$	.62
Diluted	$	.16	$	.61

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 Three Months Ended March 31, 2009

	Common Stock Class A (Number of Shares)		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balance, December 31, 2008	1,740,154		$	8,653,443		$	32,507,143		$	(1,845,657	)	$	39,314,929
Comprehensive income:
Net income							278,108						278,108
Net unrealized losses on investments, net of tax										(127,231	)		(127,231	)
Amortization of prior service credit, net of tax										(14,137	)		(14,137	)
Amortization of net actuarial loss, net of tax										169			169
Total comprehensive income													136,909
Common stock issued	14,521			179,842									179,842
Common stock repurchased	(190	)		(910	)		(1,608	)					(2,518	)
Cash dividend							(52,636	)					(52,636	)
Stock-based compensation				31,754									31,754
Balance, March 31, 2009	1,754,485		$	8,864,129		$	32,731,007		$	(1,986,856	)	$	39,608,280

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

5

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2009 and 2008

	2009			2008
Cash flows from operating activities:
Net income	$	278,108		$	1,104,454
Adjustments to reconcile net income to net cash from operating activities:
Depreciation		216,312			272,720
Deferred federal income taxes		(45,148	)		41,452
Stock based compensation expense		31,754			26,533
Net realized gains on investments		(196,661	)		(158,602	)
Net amortization of premiums on investments		77,175			59,641
Excess tax benefit from stock options exercised		—			(6,681	)
Changes in assets and liabilities:
Premiums due from policyholders		(192,589	)		426,541
Amounts due from reinsurers		(1,183,998	)		386,706
Prepaid reinsurance premiums		(39,021	)		(61,067	)
Accrued investment income		71,092			(27,239	)
Deferred policy acquisition costs		96,865			258,180
Other assets		23,701			40,578
Losses and loss adjustment expenses		860,325			(130,688	)
Unearned premiums		(1,059,768	)		(1,659,058	)
Reinsurance balances payable		(150,703	)		(163,672	)
Accrued expenses and other liabilities		220,763			(142,300	)
Net cash provided by (used in) operating activities		(991,793	)		267,498
Cash flows from investing activities:
Proceeds from sales and maturities of fixed maturity investments		8,172,246			5,554,239
Proceeds from sales of equity investments		85,000			535,853
Purchases of fixed maturity investments		(2,923,791	)		(5,060,923	)
Purchases of equity investments		(91,639	)		(529,051	)
Repayment of mortgage loans on real estate from related parties		2,760			1,864
Purchase of property and equipment, net		(248,007	)		(256,928	)
Net cash provided by (used in) investing activities		4,996,569			245,054
Cash flows from financing activities:
Proceeds from issuance of common stock		179,842			9,383
Shares repurchases of common stock		(2,518	)		—
Dividends paid to stockholders		(52,636	)		—
Tax benefit from exercised stock options		—			6,681
Net cash provided by financing activities		124,688			16,064
Net increase (decrease) in cash and cash equivalents		4,129,464			528,616
Cash and cash equivalents, beginning of period		6,576,564			4,033,158
Cash and cash equivalents, end of period	$	10,706,028		$	4,561,774

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, 2008.

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. New Accounting Pronouncements

In 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS No. 157”) which provides guidance for using fair value to measure assets and liabilities as well as enhances disclosures about fair value measurements. SFAS No. 157, which became effective for us on January 1, 2008 for financial assets and financial liabilities, applies whenever other standards require, or permit, assets or liabilities to be measured at fair value. The standard did not expand the use of fair value in any new circumstances and therefore, did not have an impact on our financial position, results of operations or cash flows. The statement established a fair value hierarchy that prioritizes the observable and unobservable inputs to valuation techniques used to measure fair value into three levels. Quantitative and qualitative disclosures focus on the inputs used to measure fair value for these measurements and the effect of these measurements in the financial statements. The required disclosures concerning inputs used to measure fair value are disclosed in Note 3. Effective January 1, 2009, the Company adopted the provisions of SFAS No. 157 related to all non-financial assets and non-financial liabilities. This adoption did not have any impact on our consolidated financial statements.

In 2007, the FASB issued Statement No. 159, “The Fair Value Option of Financial Assets and Financial Liabilities” (“SFAS No. 159”). 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 implemented SFAS No. 159 effective January 1, 2008 and 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 intent and 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.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (SFAS No. 141(R)). The Standard will significantly change the financial accounting and reporting of business combination transactions. SFAS No. 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 No. 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 implementation of SFAS No. 141(R) did not have an impact on our consolidated financial statements.

7

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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, which became effective for us on January 1, 2009, did not have a material impact on our 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.

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, which became effective for us on January 1, 2009, did not affect our consolidated financial condition or results of operations, but may require additional disclosures if we enter into derivative and hedging activities.

Note 3. 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.

Under SFAS No. 159, 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 159.

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”).

8

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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 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 March 31, 2009 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	$	49,049,685	$	1,658,954	$	47,390,731	$	—
Equity Securities-Mutual Funds		4,154,359		4,154,359		—		—
Total	$	53,204,044	$	5,813,313	$	47,390,731	$	—

4. Comprehensive Income

The Company’s comprehensive income for the three months ended March 31, are as follows:

	2009			2008
Net income	$	278,108		$	1,104,454
Other comprehensive income, net of tax:
Unrealized (losses) gains on investments		2,565			(721,907	)
Reclassification adjustment for realized gains on investments included in net income		(129,796	)		(104,677	)
Amortization of prior service credit		(14,137	)		(14,137	)
Amortization of net actuarial loss		169			2,022
Other comprehensive loss, net of tax		(141,199	)		(838,699	)
Comprehensive income	$	136,909		$	265,755

9

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

5. Earnings Per Share

Basic earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding. Diluted earnings per share has been calculated by dividing net income by the weighted-average common shares outstanding and the weighted-average dilutive share equivalents outstanding. The computation of basic and diluted earnings per share for the three months ended March 31 is as follows:

	2009		2008
Numerator for basic and diluted earnings per share:
Net income	$	278,108	$	1,104,454
Denominator:
Denominator for basic earnings per share – weighted average shares outstanding		1,744,533		1,779,985
Effect of dilutive stock options		34,020		36,806
Denominator for diluted earnings per share – adjusted weighted average shares outstanding		1,778,553		1,816,791
Basic earnings per share	$	0.16	$	0.62
Diluted earnings per share	$	0.16	$	0.61

6. 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 months ended March 31 are as follows:

	2009			2008
Net premiums earned:
Personal lines	$	9,351,382		$	7,864,128
Commercial lines		1,775,586			1,803,700
Farm		1,223,103			1,110,786
Marine		470,810			438,291
Total net premiums earned		12,820,881			11,216,905
Loss and loss adjustment expenses:
Personal lines		6,911,988			4,735,268
Commercial lines		1,113,710			1,185,601
Farm		1,028,381			429,640
Marine		167,114			(14,010	)
Total loss and loss adjustment expenses		9,221,193			6,336,499
Policy acquisition and other underwriting expenses:
Personal lines		2,881,652			2,848,576
Commercial lines		651,601			653,344
Farm		439,755			402,354
Marine		138,666			158,760
Total policy acquisition and other underwriting expenses		4,111,674			4,063,034
Underwriting gain (loss):
Personal lines		(442,258	)		280,284
Commercial lines		10,275			(35,245	)
Farm		(245,033	)		278,792
Marine		165,030			293,541
Total underwriting gain (loss)		(511,986	)		817,372
Net investment income		501,185			516,236
Net realized gains on investments		196,661			158,602
Other income, net		144,166			138,141
Income before federal income taxes	$	330,026		$	1,630,351

11

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

7. 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 months ended March 31 are as follows:

	2009			2008
Components of net periodic benefit cost:
Service cost	$	1,946		$	2,844
Interest cost		26,285			25,276
Amortization of unrecognized prior service credit		(21,421	)		(21,421	)
Amortization of unrecognized net actuarial loss		254			3,063
Net periodic benefit cost	$	7,064		$	9,762

As this plan is not pre-funded, no contributions other than those necessary to cover benefit payments are anticipated. For the three months ended March 31, 2009 the Company has made contributions to the plan of approximately $7,000. During 2009, the Company expects to contribute a total of $70,000 to the plan to cover anticipated benefit payments.

8. Reinsurance

The effect of reinsurance on premiums written and earned and losses and LAE incurred for the three months ended March 31, was as follows:

	2009						2008
	Written			Earned			Written			Earned
Direct	$	14,415,684		$	15,472,917		$	12,063,702		$	13,720,683
Assumed		14,538			17,073			17,650			19,728
Ceded		(2,687,408	)		(2,669,109	)		(2,504,486	)		(2,523,506	)
Net premiums	$	11,742,814		$	12,820,881		$	9,576,866		$	11,216,905
							2009			2008
Loss and LAE incurred							$	11,040,357		$	6,654,615
Reinsurance recoveries								(1,819,164	)		(318,116	)
Net loss and LAE incurred							$	9,221,193		$	6,336,499

9. Federal Income Taxes

The provision for income taxes consists of the following:

	Three Months Ended March 31,
	2009			2008
Current expense	$	97,068		$	484,445
Deferred expense (benefit)		(45,150	)		41,452
Total	$	51,918		$	525,897

12

Fremont Michigan InsuraCorp, Inc. and Subsidiary

Notes to Consolidated Financial Statements (Unaudited)

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 March 31,
	2009					2008
Income before federal income taxes	$	330,026				$	1,630,351
Tax at statutory rate		112,209		34.0	%		554,319		34.0	%
Tax effect of:
Nontaxable investment income		(61,617	)	(18.7	%)		(76,814	)	(4.7	%)
Nondeductible expenses		1,326		0.4	%		1,695		0.1	%
Other		—		—			46,697		2.9	%
	$	51,918		15.7	%	$	525,897		32.3	%

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 March 31, 2009 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.

The tax effects of temporary differences that give rise to deferred federal income tax assets and liabilities are as follows:

	March 31, 2009			December 31, 2008
Deferred federal income tax assets arising from:
Loss and loss adjustment expense reserves	$	440,218		$	439,895
Unearned premium reserves		1,693,203			1,741,373
Unrealized losses on investments		1,350,656			1,285,111
Realized losses on investments		123,080			123,080
Postretirement benefits accrued		600,281			591,157
Net operating loss carryforward		2,328,429			2,362,431
Alternative minimum tax credit carryforward		453,894			357,697
Other deferred tax assets		235,825			207,193
Total deferred federal income tax assets		7,225,586			7,107,937
Deferred federal income tax liabilities arising from:
Deferred policy acquisition costs		(1,238,262	)		(1,253,820	)
Property and equipment		(108,285	)		(88,698	)
Other deferred tax liabilities		(9,384	)		(13,656	)
Total deferred federal income tax liabilities		(1,355,931	)		(1,356,174	)
Net deferred federal income tax asset		5,869,655			5,751,763
Valuation allowance		(1,010,037	)		(1,010,037	)
Net deferred tax asset	$	4,859,618		$	4,741,726

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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, 2008, 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 Regulation (“OFIR”) as its primary regulator because it is the holding company for Fremont Insurance Company. As of March 31, 2009, we had approximately 67,400 policies in force and assets of $93.1 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 months ended March 31, 2009 and 2008. 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 2008 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 March 31, 2009.

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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 March 31, 2009 and December 31, 2008 (in thousands):

	March 31, 2009		December 31, 2008
Reported losses
Personal	$	9,390	$	9,043
Commercial		2,777		2,538
Farm		1,476		1,228
Marine		629		603
		14,272		13,412
IBNR losses
Personal		4,538		4,538
Commercial		2,644		2,644
Farm		447		447
Marine		329		329
		7,958		7,958
Total
Personal		13,928		13,581
Commercial		5,421		5,182
Farm		1,923		1,675
Marine		958		932
	$	22,230	$	21,370

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 March 31, 2009 and December 31, 2008, was approximately $99,000 and $131,000, 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.

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.

16

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 March 31, 2009 and December 31, 2008, the Company’s recoverable from reinsurers was comprised of the following:

	March 31, 2009		December 31, 2008
Paid losses and LAE	$	1,093,902	$	726,618
Unpaid losses and LAE		6,934,503		6,117,789
Amounts due from reinsurers	$	8,028,405	$	6,844,407

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.

17

Results of Operations – Three Months Ended March 31, 2009 and 2008

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 March 31, 2009 and 2008. 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
	2009			2008			Dollar			Percentage
Underwriting gain (loss)
Personal		(442,258	)	$	280,284		$	(722,542	)	(257.8	%)
Commercial		10,275			(35,245	)		45,520		129.2	%
Farm		(245,033	)		278,792			(523,825	)	(187.9	%)
Marine		165,030			293,541			(128,511	)	(43.8	%)
Total underwriting gain (loss)		(511,986	)		817,372			(1,329,358	)	(162.6	%)
Other revenue (expense) items
Net investment income		501,185			516,236			(15,051	)	(2.9	%)
Net realized gains (losses) on investments		196,661			158,602			38,059		24.0	%
Other income		144,166			138,141			6,025		4.4	%
Total other revenue (expense) items		842,012			812,979			29,033		3.6	%
Income before federal income taxes		330,026			1,630,351			(1,300,325	)	(79.8	%)
Federal income tax expense		(51,918	)		(525,897	)		473,979		(90.1	%)
Net income	$	278,108		$	1,104,454		$	(826,346	)	(74.8	%)

Underwriting Results. The following table shows the components of the Company’s underwriting gain or loss for the three months ended March 31, 2009 and 2008.

	2009			2008			Change			% Change
Direct premiums written	$	14,415,684		$	12,063,702		$	2,351,982		19.5	%
Net premiums written	$	11,742,814		$	9,576,866		$	2,165,948		22.6	%
Net premiums earned	$	12,820,881		$	11,216,905		$	1,603,976		14.3	%
Loss and LAE		9,221,193			6,336,499			2,884,694		45.5	%
Policy acquisition and other underwriting expenses		4,111,674			4,063,034			48,640		1.2	%
Underwriting gain (loss)	$	(511,986	)	$	817,372		$	(1,329,358	)	(162.6	%)
Loss and LAE ratio		71.9	%		56.5	%		15.4	%
Policy acquisition and other underwriting expense ratio		32.1	%		36.2	%		(4.1	%)
Combined ratio		104.0	%		92.7	%		11.3	%

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

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Direct premiums written by major business segment for the three months ended March 31 are presented in the table below:

	2009		2008		$ Change		% Change
Direct Premiums Written:
Personal	$	10,284,215	$	8,695,828	$	1,588,387	18.3	%
Commercial		2,581,072		1,980,702		600,370	30.3	%
Farm		1,212,887		1,056,693		156,194	14.8	%
Marine		337,510		330,479		7,031	2.1	%
	$	14,415,684	$	12,063,702	$	2,351,982	19.5	%

We continue to generate growth in direct premiums written which were up 19.5% in the first quarter 2009 compared to the same quarter in 2008. 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 18.3%, driven by personal auto, up 21.7%, and homeowners, up 13.9%. The personal segment’s new business increased 39.4% while renewal business was up 14.6%. Personal auto and homeowner’s new business premium increased 48.8% and 31.0%, respectively, while renewal premium grew 17.3% and 10.7%, respectively. Since December 31, 2008, the in-force policy count for personal auto and homeowners increased 4.8% and 1.6%, respectively. The growth in both homeowners and personal auto is driven by our emphasis on agency relationships, providing competitive products and the ease of doing business afforded to agents who utilize our web based platform – Fremont Complete.

The commercial segment experienced an increase of 30.3% in direct premiums written driven by growth in commercial auto, businessowners (BOP), commercial package (CPP) and workers compensation. New business was up 69.9% while renewal business was up 15.7%. Since December 31, 2008, the commercial segment’s in-force policy count increased 1.8%. The premium growth is a continuation of the momentum achieved during 2008 during which the Company was able to roll out commercial auto and workers compensation onto Fremont Complete. Our focus in commercial lines is to expand our account business. Account business means selling not only the BOP or CPP coverage but also the commercial auto and workers compensation coverages. We do not target monoline commercial auto or workers compensation coverages. In commercial lines we rely heavily on financial underwriting and tend to focus on lower hazard risk business. In addition, the majority of the growth in commercial lines has been generated by the Company’s preferred independent agents which are those agents who have a track record of submitting profitable commercial business.

Farm direct premiums written were up 14.8% during the current quarter driven by new business growth of 212.6% and an increase in renewal business of 2.6%. New business growth was positively affected by a large farm policy which accounted for $90,000 of the increase in farm written premium. Direct premiums written for the marine segment increased 2.1%, driven by new premium growth of 11.4% and renewal premium growth of 1.7%.

Net premiums written by major business segment for the three months ended March 31 are presented in the table below:

	2009		2008		$ Change		% Change
Net Premiums Written:
Personal	$	8,618,199	$	6,824,458	$	1,793,741	26.3	%
Commercial		1,731,224		1,590,058		141,166	8.9	%
Farm		1,103,049		894,210		208,839	23.4	%
Marine		290,342		268,140		22,202	8.3	%
	$	11,742,814	$	9,576,866	$	2,165,948	22.6	%

The increase in net premiums written is due to growth in direct premiums written of $2,352,000 offset by an increase of $186,000 in ceded premiums written under the Company’s reinsurance agreements.

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Net premiums earned by major business segment for the three months ended March 31 are presented in the table below:

	2009		2008		$ Change			% Change
Net Premiums Earned:
Personal	$	9,351,382	$	7,864,128	$	1,487,254		18.9	%
Commercial		1,775,586		1,803,700		(28,114	)	(1.6	%)
Farm		1,223,103		1,110,786		112,317		10.1	%
Marine		470,810		438,291		32,519		7.4	%
	$	12,820,881	$	11,216,905	$	1,603,976		14.3	%

The increase in net premiums earned is due to the overall increase in direct premiums earned of $1,752,000 offset by an increase of $148,000 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 March 31 are shown in the tables below:

	2009			2008			$ Change			% Change
Loss and LAE:
Personal	$	6,911,988		$	4,735,268		$	2,176,720		46.0	%
Commercial		1,113,710			1,185,601			(71,891	)	(6.1	%)
Farm		1,028,381			429,640			598,741		139.4	%
Marine		167,114			(14,010	)		181,124		1292.8	%
	$	9,221,193		$	6,336,499		$	2,884,694		45.5	%
Incurred Claim Count:
Personal		2,433			2,169			264		12.2	%
Commercial		227			205			22		10.7	%
Farm		150			114			36		31.6	%
Marine		38			30			8		26.7	%
		2,848			2,518			330		13.1	%
Average Loss and LAE per Claim:
Personal	$	2,841		$	2,183		$	658		30.1	%
Commercial		4,906			5,783			(877	)	(15.2	%)
Farm		6,856			3,769			3,087		81.9	%
Marine		4,398			(467	)		4,865		1041.7	%
	$	3,238		$	2,516		$	722		28.7	%
Loss and LAE Ratio:
Personal		73.9	%		60.2	%
Commercial		62.7	%		65.7	%
Farm		84.1	%		38.7	%
Marine		35.5	%		(3.2	%)
		71.9	%		56.5	%

Overall, the first quarter of 2009 was negatively impacted by an increase in fire related losses and to a lesser extent an increase in losses related to winter weather experienced during January and February of 2009. In the personal segment, our homeowner’s line generated a loss and LAE ratio of 86.6% for the first quarter of 2009 compared to 54.7% in the first quarter of 2008. The significant increase in the loss and LAE ratio was due primarily to higher severity from fire losses coupled with increased loss frequency associated with weather related losses. Colder temperatures and snow accumulation during the early part of the quarter caused an increase in freezing losses as well as collapse losses associated with snow accumulation. The increase in claim count for the personal segment was driven by the homeowner’s line.

The loss and LAE ratio for personal auto decreased to 65.6% in the first quarter of 2009 from 69.1% in the first quarter of 2008. The decrease is due to growth in net premiums earned as well as a drop in claim frequency and severity during the first quarter of 2009. The claim count for personal auto in the first quarter of 2009 was consistent with the first quarter of 2008.

20

The farm segment was also negatively impacted by fire losses which caused the increase in its loss and LAE ratio as compared to the 2008 quarter.

Policy Acquisition and Other Underwriting Expenses.Policy acquisition and other underwriting expenses for the three months ended March 31 were as follows:

	2009			2008			Change			% Change
Amortization of deferred policy acquisition costs	$	2,015,153		$	1,879,677		$	135,476		7.2	%
Other underwriting expenses		2,096,521			2,183,357			(86,836	)	(4.0	%)
Total policy acquisition and other underwriting expenses	$	4,111,674		$	4,063,034		$	48,640		1.2	%
Net premiums earned	$	12,820,881		$	11,216,905		$	1,603,976		14.3	%
Expense ratio		32.1	%		36.2	%		(4.1	%)

Amortization of deferred policy acquisition costs (“DAC”) increased during the first quarter of 2009 as compared to the same period in 2008 as a result of increased earned premium volume. However, as a percentage of net premiums earned DAC amortization decreased from 16.8% to 15.7% 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 and a decline in depreciation expense.

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 March 31 are as follows:

	2009			2008			Change			% Change
Fixed maturities	$	567,440		$	566,886		$	554		0.1	%
Equity securities		157			69			88		127.5	%
Cash and cash equivalents		20,834			39,009			(18,175	)	(46.6	%)
Gross investment income		588,431			605,964			(17,533	)	(2.9	%)
Less: Investment expenses		(87,246	)		(89,728	)		(2,482	)	(2.8	%)
Net investment income	$	501,185		$	516,236		$	(15,051	)	(2.9	%)
Average invested assets (amortized cost basis)	$	68,587,357		$	62,067,890		$	6,519,467		10.5	%
Rate of return on average invested assets		2.9	%		3.3	%		(0.4	%)

Gross investment income from the fixed portfolio during the first quarter of 2009 was consistent with the same period in the prior year. However, over the last 12 months, the markets have seen extremely volatile conditions. The Federal Funds Rate dropped from an already low 1% to an unprecedented 0% to 0.25% range. Therefore, the interest rate environment in the first quarter of 2009 was much lower than in the first quarter of 2008. Over the last four quarters, the portfolio has been positioned to reduce both credit risk and interest rate risk going forward. This has led to investing in more risk averse securities. The portfolio duration has also been reduced from 5.3 years during the first quarter of 2008 to below 4 years in the first quarter of 2009. This substantial decrease has produced a portfolio more defensive to a potential rise in interest rates. The combination of these investment decisions, combined with much lower yields, particularly on the short end of the yield curve, is expected to lead to a modest decline in investment income through the remainder of 2009. The decline in income from cash and cash equivalents is a result of the lower interest rate environment experienced during the first quarter of 2009 compared to the same period in the prior year. Investment expenses decreased slightly as a result of lower advisory fees.

The table below summarizes the net realized gains generated during the three month period ended March 31:

	2009			2008		Change			% Change
Net realized gains (losses) - fixed maturities	$	253,825		$	66,383	$	187,442		282.4	%
Net realized gains (losses) - equity securities		(57,164	)		92,219		(149,383	)	(162.0	%)
Total net realized gains (losses)	$	196,661		$	158,602	$	38,059		24.0	%

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During the quarter ended March 31, 2009, the Company sold approximately $5.5 million in fixed maturity securities which generated realized gains of $253,825. In addition, the Company rebalanced a portion of the equity portfolio in order to realign the sector allocation within the portfolio. The rebalancing resulted in net realized losses of $57,164.

Income Tax Expense. During the quarters ended March 31, 2009 and 2008 the Company recorded income tax expense of approximately $52,000 and $526,000, respectively. The decrease is due to lower pre-tax income in the 2009 quarter compared to the prior year period coupled with higher tax-exempt interest income during the 2009 quarter compared to 2008. The effective tax rate for the quarter ended March 31, 2009 was 15.7% compared to 32.3% in the prior year quarter. The decrease in the effective tax rate is due to the fact that non-taxable investment income made up a larger component of total pre-tax income in the 2009 quarter as compared to the 2008 quarter.

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 (used in) provided by operations was $(992,000) and $267,000 for the three months ended March 31, 2009 and 2008, respectively, a decrease of $1,259,000. During the three months ended March 31, 2009 as compared to the same period in 2008, net premiums collected increased $1,745,000, net loss and LAE payments increased $3,464,000, policy acquisition and other underwriting expenses paid increased $230,000 and federal income taxes paid decreased $600,000. Other cash provided by operations increased $90,000 during the three months ended March 31, 2009 compared to the same period in 2008.

During the three months ended March 31, 2009 and 2008, cash flow provided by investing activities was $4,997,000 and $245,000, respectively. The increase in cash flow provided by investing activities is due to an increase in the sales of fixed maturity securities.

Cash provided by financing activities was $125,000 and $16,000 for the three months ended March 31, 2009 and 2008, respectively. During the three months ended March 31, 2009, financing activities consisted of the issuance of common stock which generated $180,000 in proceeds, share repurchases of approximately $2,000 and a cash dividend of $53,000 paid to stockholders. During the same period in 2008, financing activities consisted of cash received of approximately $16,000 from the exercise of stock options.

The Company paid a quarterly cash dividend of $.03 per common share on March 30, 2009 which totaled 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 March 31, 2009, the Company repurchased 190 shares of our common stock under a repurchase plan which was previously announced on May 8, 2008. The shares were repurchased at a cost of approximately $2,518, or $13.25 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 March 31, 2009 and December 31, 2008 are as follows:

	March 31, 2009
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	6,844,590	$	174,967	$	—	$	7,019,557
States and political subdivisions		22,972,995		430,106		369,227		23,033,874
Corporate securities		6,094,994		68,434		261,238		5,902,190
Mortgage-backed securities		13,609,674		218,059		733,669		13,094,064
		49,522,253		891,566		1,364,134		49,049,685
Equity securities - mutual funds		7,654,308		—		3,499,949		4,154,359
Total	$	57,176,561	$	891,566	$	4,864,083	$	53,204,044
	December 31, 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	$	9,088,700	$	293,127	$	—	$	9,381,827
States and political subdivisions		23,010,088		224,481		721,766		22,512,803
Corporate securities		5,116,362		49,142		71,830		5,093,674
Mortgage-backed securities		17,378,907		304,940		713,368		16,970,479
		54,594,057		871,690		1,506,964		53,958,783
Equity securities - mutual funds		7,704,834		—		3,144,466		4,560,368
Total	$	62,298,891	$	871,690	$	4,651,430	$	58,519,151

At March 31, 2009, corporate securities accounted for 12% of our fixed maturity portfolio, mortgage backed securities were 27%, states and political subdivisions (including both taxable and tax-exempt municipal) were 47% and U. S. government and government agency bonds were 14%. At March 31, 2009, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 27%, mid-cap – 23%, small-cap – 27%, specialty – 4%, and international – 19%.

At December 31, 2008, corporate securities accounted for 9% of our fixed maturity portfolio, mortgage backed securities were 32%, states and political subdivisions (including both taxable and tax-exempt municipal) were 42% and U. S. government and government agency bonds were 17%. At December 31, 2008, our equity portfolio, which consists entirely of mutual funds, was spread among the following mutual fund types: large-cap – 29%, mid-cap – 24%, small-cap – 26%, specialty – 3%, and international – 18%.

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 March 31, 2009 were determined to have temporary declines in value generally 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 March 31, 2009 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 March 31, 2009 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	$	—	$	—	$	—	$	—	$	—	$	—
States and political subdivisions		519,015		2,784		7,184,850		366,443		7,703,865		369,227
Corporate securities		378,322		26,399		1,398,018		234,839		1,776,340		261,238
Mortgage-backed securities		1,612,145		120,059		3,250,927		613,610		4,863,072		733,669
		2,509,482		149,242		11,833,795		1,214,892		14,343,277		1,364,134
Equity securities - mutual funds		2,490,156		1,890,800		1,664,203		1,609,149		4,154,359		3,499,949
Total	$	4,999,638	$	2,040,042	$	13,497,998	$	2,824,041	$	18,497,636	$	4,864,083

As of March 31, 2009, the portfolio included four fixed maturity securities and ten equity securities in an unrealized loss position for less than twelve months and twenty-seven fixed maturity securities and five equity securities in an unrealized loss position for more than twelve months. Of the fixed maturity securities, one was trading below 75% of amortized cost; six were trading between 76% and 84% of amortized cost, nine were trading between 85% and 94% of amortized cost while the remaining fifteen 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 fifteen equity securities in an unrealized loss position, the range of market value to cost was from 41% up to 72%. 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

Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the market valuation of these securities. Therefore, an adverse change in market prices of these securities would result in losses reflected in the balance sheet. The following table shows the effects of a change in interest rates 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%	$	44,511	$	(4,539	)
1%		46,779		(2,271	)
0		49,050		—
-1%		51,322		2,272
-2%		53,596		4,546

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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

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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.

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, 2008.

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, 2009, the Insurance Company can pay a non-extraordinary dividend of up to $2,688,000 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.

The following table sets forth the repurchases of common stock for the quarter ended March 31, 2009:

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 January 31, 2009	190	$	13.25	190	58,810
Month ended February 28, 2009	—	$	—	—	58,810
Month ended March 31, 2009	—	$	—	—	58,810
Total	190	$	13.25	190

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

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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: May 15, 2009	By:	/s/ Richard E. Dunning
		Richard E. Dunning
		President and Chief Executive Officer
Date: May 15, 2009	By:	/s/ Kevin G. Kaastra
		Kevin G. Kaastra
		Vice President of Finance
		(principal financial and accounting officer)

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